1:50pm (EST)
Zynga (ZNGA, $9.87, down $0.13) opened for trading this morning on the Nasdaq stock exchange after pricing shares at the top end of their expected range. The company offered Wall Street 100 million shares at $10 which raised $1 billion with over-allotments of 15 million shares that could bring the deal to $1.15 billion.
The initial public offering (IPO) values Zynga at $7 billion based on the company selling company a little over 10% of its diluted shares.
Early research reports have Zynga’s current user base at over 50 million active customers, which is incredible, but we are a little worried over the average lifespan for Zynga gamers which is only 10 days. We haven’t played “Farmville” because it looks boring but “Mafia Wars” seems to be decent and the company is promising a slew of new games.
The games are free but the company makes bank from users who buy upgrades for them. We find it hard to believe that some Farmers (gamers) spend up to a grand a month to buy pink cows for Farmville. A few Farmville addicts are spending $10,000 a month to play this game. Really?
One interesting tidbit is that the Zynga’s revenue has doubled over the past 9 months but only 5% of sales are coming from advertising. The potential is there to grow this business into something special but we are already hearing some funky accounting practices which have us leery. Competition will only heat up and it will depend on how the company adapts.
One area we can see BOOMING is the online poker industry which Zynga could benefit from if the knuckleheads in Congress ever make it legal here in the states. Zynga Poker could become very, very lucrative which would be the only reason we buy this stock. File this away and if Congress does approve a legal online poker bill in 2012, Zynga will soar on the news. In the meantime, watch it trade and wait for the options to come out. There could be a LEAP trade based on the prediction alone.
As far as the market, the so called “pros” are packing it in for the year as they usually do. Many of the Wall Street traders focus on the holidays and the so called gurus think they deserve the last few weeks off so they tell you the market is heading lower or in this case the Dow will have trouble cracking 12,000 again.
This may be true but we remember the same thing happening last year and we did very well by ignoring the crowd and doing our homework. We had a number of trades that we opened at in December 2010 that did very well into January of this year so here is our point.
Never short a dull market and never give up on the last few weeks of December. Hopefully, we will be able to establish some new positions next week which could be either bullish or bearish because we do feel the Dow is going to make a huge move by mid-January and could be at 12,800-13,000 or 11,000 before Wall Street catches on.
As we head to press, the bulls are trying to hold onto their gains but the bears will probably win the week. The Dow is down 8 points to 11,860 while the S&P 500 is higher by 4 points to 1,220. The Nasdaq is up 14 points to 2,555.
We will be back Sunday night with our Weekly Wrap and please take advantage of our special introductory offer by using this morning’s coupon code. The newsletter should end 2011 with a perfect 16-0 track record. For conservative traders, this newsletter is for you and can be used to produce monthly dividends. Until then, have a great weekend everyone!
