4 ms·

GRPN was a always a short sellers dream come true. Next up, ZNGA.

by walru 15y ago

untog 15y ago
Why do you say Zynga? It was my understanding that their financials are a good bit more stable, even if they are Facebook-dependent.
- Quizzy 15y ago
  Zynga's business model is like any other gaming publisher (such as EA, Blizzard, etc.). To succeed in gaming you MUST have a pipeline of games that continue revenue growth. If you cannot create your own, then you must acquire indie developers (OMGPOP recently). In time Zynga stock will be no different than any other gaming publisher stock. Look at Blizzard: other than Diablo, Starcraft and WoW, it has created nothing in the last 4 years beyond sequels. Homegrown innovation is nearly impossible. Rovio was in the business for 5 years before Angry Birds, and I doubt they'll have another hit like Angry Birds ever again. Id fell apart when it couldn't come up with something better than the Doom franchise. OMGPOP was very smart to sell out to Zynga, because there is no way it would have come up with something even close to Draw Something in another 5 years. Unlike rock stars and pop singers, creating a string of gaming hits is so much harder because it requires the perfect storm of so many variables each and every time, whereas a single person like Adele, Amy Winehouse, etc. can rely on their genius alone to create a hit.
  - bomatson 15y ago
    I can appreciate this insight on Zynga, but I'd like to offer another perspective: First off, have you seen the way Blizzard's stock performed during 2008? It was one of the few that continued to grow... Rovio has more than just Angry Birds direct sales, it has a TON of merchandising opportunities with the characters (think Pixar). Plus they have a huge base of users that is excited to see what's next. I'd also contend the rock stars analogy is backward - It is FAR more risky to assume a sole person can continue re-inventing themselves over a entire career. Granted, it's hard for game publishers, but at least there's a team and a more defined process for the innovation.
  - trimbo 15y ago
    > Id fell apart when it couldn't come up with something better than the Doom franchise. Except for, you know... Quake. On your other point. The difference between Zynga and EA is that Zynga's games have a huge turnover rate and a very low percentage of paying customers. EA's games -- at least most of their games -- have 100% paying customers and have a large returning customer rate year after year (Madden 11, Madden 12, Madden 13, Fifa 11, Fifa 12...). So in other words, Zynga's business model is completely different than EA's.
dia80 15y ago
Yes, it was, and that's why it is nearly impossible to short. I've been paying 30-40% annualised to borrow the stock for shorting and the rate spiked to nearly 60% recently. Being short is more expensive that most people think.
- nowarninglabel 15y ago
  Why not just buy puts on it?
  - dia80 15y ago
    They are extremely expensive reflecting the cost of borrowing the stock. If the weren't you could buy the stock, lend it out and then buy a put and sell call to make a 'synthetic short' and pocket a risk free profit. No free lunches.
    - nowarninglabel 15y ago
      Thank you for the follow-up, sorry if too many questions, but one more. If I hold the general consensus opinion here that Groupon is heading to insolvency, and let's say it will be insolvent by January 2013, is it cheaper then to attempt to acquire Groupon stock to short it on margin than to buy a January 2013 put, even if your margin is running at 60%?
      - dia80 15y ago
        You can buy a Jan 13 $10 put for $2.05 so you have an upside of $7.95, just under 4:1 payoff in the event of a proper bankruptcy. That's not a lot so you can see a fair chance of disaster is already priced in. As a casual investor the option probably wins because you can sleep easier at night knowing that if GroupOn announce a cure for cancer you are only losing the $2.
        nowarninglabel 15y ago
        Thank you, I was able to easily grok what you are saying, I was never thinking of it before in terms of 4:1 payoff, but that makes sense.

GRPN was a always a short sellers dream come true. Next up, ZNGA.

by walru 15y ago

GRPN was a always a short sellers dream come true. Next up, ZNGA.

untog 15y ago

Why do you say Zynga? It was my understanding that their financials are a good bit more stable, even if they are Facebook-dependent.

Quizzy 15y ago
Zynga's business model is like any other gaming publisher (such as EA, Blizzard, etc.). To succeed in gaming you MUST have a pipeline of games that continue revenue growth. If you cannot create your own, then you must acquire indie developers (OMGPOP recently). In time Zynga stock will be no different than any other gaming publisher stock. Look at Blizzard: other than Diablo, Starcraft and WoW, it has created nothing in the last 4 years beyond sequels. Homegrown innovation is nearly impossible. Rovio was in the business for 5 years before Angry Birds, and I doubt they'll have another hit like Angry Birds ever again. Id fell apart when it couldn't come up with something better than the Doom franchise. OMGPOP was very smart to sell out to Zynga, because there is no way it would have come up with something even close to Draw Something in another 5 years. Unlike rock stars and pop singers, creating a string of gaming hits is so much harder because it requires the perfect storm of so many variables each and every time, whereas a single person like Adele, Amy Winehouse, etc. can rely on their genius alone to create a hit.
- bomatson 15y ago
  I can appreciate this insight on Zynga, but I'd like to offer another perspective: First off, have you seen the way Blizzard's stock performed during 2008? It was one of the few that continued to grow... Rovio has more than just Angry Birds direct sales, it has a TON of merchandising opportunities with the characters (think Pixar). Plus they have a huge base of users that is excited to see what's next. I'd also contend the rock stars analogy is backward - It is FAR more risky to assume a sole person can continue re-inventing themselves over a entire career. Granted, it's hard for game publishers, but at least there's a team and a more defined process for the innovation.
- trimbo 15y ago
  > Id fell apart when it couldn't come up with something better than the Doom franchise. Except for, you know... Quake. On your other point. The difference between Zynga and EA is that Zynga's games have a huge turnover rate and a very low percentage of paying customers. EA's games -- at least most of their games -- have 100% paying customers and have a large returning customer rate year after year (Madden 11, Madden 12, Madden 13, Fifa 11, Fifa 12...). So in other words, Zynga's business model is completely different than EA's.

dia80 15y ago

Yes, it was, and that's why it is nearly impossible to short. I've been paying 30-40% annualised to borrow the stock for shorting and the rate spiked to nearly 60% recently. Being short is more expensive that most people think.

nowarninglabel 15y ago
Why not just buy puts on it?
- dia80 15y ago
  They are extremely expensive reflecting the cost of borrowing the stock. If the weren't you could buy the stock, lend it out and then buy a put and sell call to make a 'synthetic short' and pocket a risk free profit. No free lunches.
  - nowarninglabel 15y ago
    Thank you for the follow-up, sorry if too many questions, but one more. If I hold the general consensus opinion here that Groupon is heading to insolvency, and let's say it will be insolvent by January 2013, is it cheaper then to attempt to acquire Groupon stock to short it on margin than to buy a January 2013 put, even if your margin is running at 60%?
    - dia80 15y ago
      You can buy a Jan 13 $10 put for $2.05 so you have an upside of $7.95, just under 4:1 payoff in the event of a proper bankruptcy. That's not a lot so you can see a fair chance of disaster is already priced in. As a casual investor the option probably wins because you can sleep easier at night knowing that if GroupOn announce a cure for cancer you are only losing the $2.
      - nowarninglabel 15y ago
        Thank you, I was able to easily grok what you are saying, I was never thinking of it before in terms of 4:1 payoff, but that makes sense.