Zynga Call Buyers Score Quick Gains on Buyout
Zynga (ZNGA) shares jumped sharply on 1/10 after Take Two (TTWO) announced a cash and stock deal. The buyout came just one month after we highlighted significant size call buying in ZNGA into weakness. The ZNGA calls are worth up more than 100% and the stock part of the deal means they may continue to gain if TTWO works higher.
Here was the original post from 12/9:
Zynga (ZNGA) with 30,000 May $8 calls opening for $0.57 as the January calls close and also seeing 15,000 March $8 calls roll to June. ZNGA has seen buyers recently in the February $6 calls and January $5 and $8 calls while the January $6 puts sold to open over 8000X on 12/1. The May $9/$6 bull risk reversal was bought over 15,000X in September. Shares have been cut in half since the February highs and back to a big volume node from 2019/2020 and the 61.8% Fib retracement from the 4-year run higher from 2017. VWAP from the 2016 lows is also at $6.20, a key spot that held in 2018 as well. The $6.9B company trades 15.89X earnings, 2.5X sales, and 23.5X FCF. ZNGA has struggled in 2021 with tough comps against the pandemic and changes to Apple’s IDFA declarations earlier this year which weighed on the hypercasual gaming sector. The company continues to see strong engagement and planning a big 2022 with new game rollouts including Star Wars: Hunters and a massive initiative to expand their live services which will help grow their biggest titles like Empires & Puzzles, Words with Friends, and Zynga Poker. ZNGA continues to see a massive market opportunity within hypercasual gaming and now the second largest mobile operator in the US and mobile as a platform is now larger than both PC and consoles combined. The company noted at the UBS conference yesterday they see the TAM up to $93B from $63B in 2018 and room to expand to $120B over the next several years. Analysts have an average target for shares of $10.50 with a Street High $13.50. JP Morgan positive on 12/2 noting that at current levels the market appears to be pricing in limited or no growth from here, which is overly pessimistic given the pipeline, recent and potential acquisitions, and a still rising mobile games market. The firm thinks a return to a mid-teens multiple could take some time, but even partial traction on Zynga’s initiatives can improve sentiment and help shares re-rate higher. Hedge fund ownership fell 4.5% but interesting add from activist Corvex Management who took their stake from 2M shares up to 9M shares. They also added another 2M shares via call options. Point 72 also added almost 6M shares. Short interest is 5.85% and down from around 11% in January.
