8 I wrote this back in Feb/March, happier times. Back then ZNGA was trading in the $13 range, now it is at $5.88. I made an egregious amount of coin shorting it into earnings. I then had the bright idea to do a correlation play with the thesis buy-sell-short on momentum from the FB IPO but we all know how that went. Here are my notes, and David Einhorn’s commentary.
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“Zynga may be a fine short. However, it seems that the deteriorating results came from changes in accounting. The case that the business itself is deteriorating and/or worthless is not made compellingly. The presence of a likely bullish catalyst (legalized online poker) where the author anticipates covering (and even going long) on the news doesn’t seem compelling to me. You don’t want a short that is likely to both spike and force you to cover. Perhaps, this is just one to watch so that it can be sold into such a spike, provided that such an event isn’t likely to transform the business. Unfortunately, there isn’t enough analysis to judge whether such a catalyst could actually validate the business.”
8 Responses to “Why I Should Have Never Been Long ZNGA”
zenhunter
That was a very compelling write-up you did back then. Wish I had read it then and embarked on the short campaign . The March 2nd Shooting Star candlestick kick-started the downtrend beautifully. From that point on, moving stop to each pivotal high would have you walked the price down to current level. Hopefully, the money you made shorting is more than enough to offset your “correlation” play.
Again, great write-up on ZNGA.
Rhino
Thanks, it is, 4x greater actually, because I hedged with puts as well. Wish I hadn’t covered at $10…..
drbigboss
live and learn man! this game is all about constant progression so no trading loss is without value if progress is made. Nice writeup!
zenhunter
Good for you! You covered at $10 because you did not have hindsight. No one has! It was still a great play.
The correlation play is simply another trade that did not work; but I see the damage of this play is not so much of your pocketbook. It took away the opportunity for you to see ZNGA as another short play again.
Rhino
Thanks. I think it could be a short again if we get a serious January’esque bull rush and it breaks $10.
thetapeguy
I don’t follow ZNGA on a daily basis, but that shit looks like a bagel stock from here, Rolling on down to zero. 🙁
Rhino
Only my second short I truly believe in with conviction.
Stock Ideas I Learned From The Rhino | StockIdeas.org
[…] Have Courage In Your Conviction – A good stock idea is not good enough. You need to have the fortitude to pull the trigger and follow through on your investment idea. The Rhino is very clear on why he holds all of his positions. And this helps him maintain conviction in his investments, even if a trade might be going against him. It’s the same reason I am so diligent about establishing criteria for evaluating stock picks ahead of time. […]