Call Options Or Put Options On Zynga (ZNGA)?
Zynga (ZNGA), the troubled online/mobile game company, is once again in the news. The stock is back in play after this week’s earnings release.
ZNGA shares are trading at $4.45, up 21% year-to-date. The stock’s up 78% from the 52-week low of $2.50 and is 11% below the 52-week high of $4.97.
Is this an opportunity to buy call options on ZNGA due to the company’s acquisition of mobile game maker NaturalMotion? Or should you buy put options on ZNGA because of its inability to replicate its former success?
The bulls make a convincing argument…
ZNGA has struggled since its glory days of producing super popular Facebook games. However, a turning point may have finally been reached.
The company’s Q4 loss was less than expected, primarily due to several cost-cutting measures. In fact, ZNGA decreased its costs by 25% – an impressive achievement by management.
More importantly, ZNGA used some of its over $1 billion in cash to purchase mobile game and technology developer NaturalMotion for $527 million. The purchase will not only expand the customer base, but gives ZNGA access to a cutting edge gaming tech company – which should breathe new life into the product line.
But the bears have a compelling case as well…
ZNGA continues to lose customers in droves and revenues are plunging. Q4 revenues are down 43% year-over-year. That’s a huge decline.
Moreover, daily active users plunged 52% – while monthly active users fell off a cliff to the tune of a 62% drop. Active users are the lifeblood of a mobile/online gaming company, so those numbers really hurt.
The bottom line is ZNGA can’t get away with copying popular gaming ideas and marketing the heck out of them. That strategy just doesn’t work anymore. The company is going to have to come up with fresh content if it wants to return to its glory days.
So is the acquisition of NaturalMotion a reason to buy, or is the company in trouble due to the plunge in Q4 revenues and active users?
If you think the bulls are right, take a look at buying the ZNGA March $4.50 calls for around $0.30.
If you think the bears are right, take a look at buying the ZNGA March $4.50 puts for around $0.30.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
