A company that generates $300M per quarter has a "real" business, despite your disdain for their business model.
ZNGA isn't like a business that spends $100 in ads to make $80 in ad clicks. They are making real games that millions of people appear to enjoy. I myself don't enjoy them, either, but I'm not going to just dismiss their business as having no value.
The main problem for them is that they haven't grown their revenues as quickly as they need to. But in order to turn themselves into a profitable business, all they need to do is cut costs. I've been to their offices and talked to friends that worked there, so I know there's plenty of room to cut costs. That being said, if their revenues drop, they could be in for real trouble.
That being said, I just dumped my entire position today (with my luck, right at the very bottom). My biggest fear is that their revenues keep falling, and they die death-by-a-thousand-cuts. If this quarter is a kitchen-sink quarter, then I might pick some up after they release their official numbers.
I guess you didn't go through their financials. You do realize they can cut expenses like R&D, SGA, etc, and probably not affect their revenues immediately. To me, they are like YHOO, where they have a bunch of people using the products through sheer inertia. YHOO in the past few years has been doing exactly that, which is cut costs relative to their revenues, and shown a decent profit, without affecting their income drastically.
ZNGA could do the same thing. They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc, and their current earnings for at least a few quarters wouldn't be affected immediately. They still need to create new games to entice those same users
I didn't because I thought you had some inside knowledge on the situation and that you might share it. They were questions of the non-rhetorical type.
>They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc //
Sounds great. When you say SGA, isn't that mainly wages. So, lay off most of their staff, do away with a large part of development and still generate the same earnings. Won't that just cause them to fail slowly?
I can see how Yahoo can coast on inertia to some extent but aren't Zynga more reliant on novelty? Yes new people come along, but they're entering - in social gaming terms - a pool of people who've already tired of a particular game/games.
The main problem for them is that they haven't grown their revenues as quickly as they need to. But in order to turn themselves into a profitable business, all they need to do is cut costs. I've been to their offices and talked to friends that worked there, so I know there's plenty of room to cut costs. That being said, if their revenues drop, they could be in for real trouble.
That being said, I just dumped my entire position today (with my luck, right at the very bottom). My biggest fear is that their revenues keep falling, and they die death-by-a-thousand-cuts. If this quarter is a kitchen-sink quarter, then I might pick some up after they release their official numbers.