Is Facebook The Ultimate Short?

Quick, name a mega cap stock with declining usage and trading at 32x forward earnings estimates. Don't research too long and hard, as such stocks don't exist outside the magical world of Facebook (FB).ComScore just reported that the company again saw declining usage of its service in August. With the stock valuation held up with the promises of mobile monetization, a new search tool, and eventual


Glu Mobile: Social Mobile Gaming Play

While the whole gaming market was focused on Zynga (ZNGA) and the social media gaming platform of Facebook (FB) in 2011, Glu Mobile (GLUU) quietly focused on building a mobile gaming empire. The company is scheduled to launch a total of 18 games in the back half of 2012.The company is leading global developer and publisher of freemium games for smartphone and tablet devices.The company that


Glu Mobile CEO On Bloomberg

Niccolo De Masi, chief executive officer at Glu Mobile Inc (GLUU)., talks about his company's strategy and the video game industry. He speaks with Pimm Fox on Bloomberg Television's "Taking Stock." Great interview and interesting company that is taking advantage of the move to mobile gaming. Clearly Zynga (ZNGA) and Facebook (FB) have been huge losers from this quick transition away


Hedging Update: Social Media Stocks

Hey fellow Slopers,

Sorry for being scarce recently -- I was under the weather for a stretch, but am back in action now.

After seeing Tim's post today on Zynga and Facebook ("Remember to Get Excited About Facebook's IPO"), I thought I'd take another look at the hedging costs of Zynga and a couple of other currently-public social media stocks. First though, a couple of links related to the Zynga and Facebook that might be of interest.

On Monday, the Financial Times published this piece on Zynga founder Mark Pincus and his company's new headquarters ("The Tech World's Willy Wonka"). Judging from Pincus's big smile in the accompanying photo, he doesn't seem to be too troubled by ZNGA's ugly chart.

With respect to Facebook, Bloomberg News tweeted this on Thursday.

 

According to the link in the tweet above, some institutional investors expressed concerns about the growth of Facebook's advertising revenues relative to its growth of users. After Facebook is public and has options traded on it, it will be interesting to see how expensive it is to hedge. In the meantime, we can look at the costs of hedging a few social media stocks that are public and optionable now. The table below shows the costs, as of Friday's close, of hedging LinkedIN, Zynga, and Pandora against greater-than-27% drops over the next several months, using optimal puts.

Comparisons

For comparison purposes, I've added the Global X Social Media Index ETF (SOCL) and the PowerShares QQQ Trust ETF (QQQ) against the same decline. First, a reminder about what optimal puts are, and a note about why I've used 27% as a decline threshold this time; then, a screen capture showing the optimal put to hedge one of the comparison ETFs, QQQ.

About Optimal Puts

Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor (available on the web and as an Apple iOS app), uses an algorithm developed by a finance Ph.D to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones.

Decline Thresholds

In this context, "threshold" is the maximum decline you are willing to risk. You can enter any percentage you like for a decline threshold when scanning for optimal puts (the higher the percentage though, the greater the chance you will find optimal puts for your position).

Often, I use 20% thresholds when hedging equities, but two of these stocks were too expensive to hedge using 20% thresholds (i.e., the cost of hedging them against a greater-than-20% drop was itself greater than 20%, so Portfolio Armor indicated that no optimal contracts were found for them). There were optimal contracts available for all of these names using a decline threshold of 27%, so that's the threshold I've used below.

The optimal put to hedge QQQ against a greater-than-27% drop

Below is a screen capture of the optimal put option contract to buy to hedge 100 shares of QQQ against a greater-than-27% drop between now and December 21st, 2012. A note about this optimal put and its cost: To be conservative, the app calculated the cost based on the ask price of the optimal put. In practice an investor can often purchase puts for a lower price, i.e., some price between the bid and the ask (the same is true of the other names in the table below).

A QQQ

Hedging costs as of Friday's close

The table below shows the costs of hedging these names against greater-than-27% declines over the next several months. Costs are presented as percentages of position value. Given the high cost of hedging some of these names, if you own them as part of a diversified portfolio, and are content to let that diversification ameliorate your stock-specific risk -- but are still concerned about market risk -- you might consider buying optimal puts on an index-tracking ETF (such as SPY) instead, as a way to hedge your market risk. Or you might consider just selling them.

Symbol

Name

Hedging Cost

 

Recent Tech IPOs

 

LNKD

LinkedIn

8.49%*

P

Pandora Media, Inc.

21.1%**

ZNGA

Zynga

20.1%**

 

Comparisons

 

SOCL

Global X Social Media Index

22.0%**

QQQ

PowerShares QQQ Trust

1.42%**


*Based on optimal puts expiring in November

**Based on optimal puts expiring in December


TripAdvisor Takes Investors On A Wild Ride

Recent spin-off TripAdvisor (TRIP) [see Spin-Off Mania Benefits Alert Investors] had possibly the most disappointing Q4'11 earnings report reviewed so far. The spin-off from Expedia (EXPE) offered huge potential as it became independent from the bigger corporation.TripAdvisor provides a travel research platform which aggregates reviews and opinions of members about destinations, accommodations,

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What exactly does Zynga do?

From Yahoo Finance:
Zynga Inc. develops, markets, and operates online social games on the Internet, social networking sites, and mobile platforms. The company offers poker games, word games, and board games.
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Big Cap Tech versus Internet Bubble 2.0 (by Dave Pinsen)

Big Cap Tech Versus Internet Bubble 2.0

Hey fellow Slopers,

Mike Paulenoff's post Wednesday afternoon ("Big-Cap Tech Stocks to Watch") and the release of Groupon's earnings later in the day, prompted me to take another look the hedging costs of some big cap tech stocks along with the cost hedging Groupon and a few other Internet companies that went public in 2011.

Groupon dropped 15.6% after hours Wednesday after it announced a Q4 loss, but at least one observer was bullish on it on Twitter. You might recognize his name from the late '90s:

 

 

Even Blodget admits that Groupon is overvalued though -- he's bullish on the company, but not the stock now. Options investors seemed to be bearish on the stock as well, judging by the high cost of hedging it on Wednesday. Of the new tech companies here, Groupon was one of the most expensive to hedge. The table below shows the costs, as of Tuesday's close, of hedging Groupon and seven other tech stocks -- big caps and ones with 2011 IPOs -- against greater-than-33% declines over the next several months, using optimal puts.

A comparison

For comparison purposes, I've also added the cost of hedging the PowerShares QQQ Trust ETF (QQQ) against the same decline. First, a reminder about what optimal puts are, and a note about why I've used 33% as a decline threshold this here; then, a screen capture showing the optimal puts to hedge the comparison ETF QQQ.

About Optimal Puts

Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor (available on the web and as an Apple iOS app), uses an algorithm developed by a finance Ph.D to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones..

Decline Thresholds

In this context, "threshold" is the maximum decline you are willing to risk. You can enter any percentage you like for a decline threshold when scanning for optimal puts (the higher the percentage though, the greater the chance you will find optimal puts for your position). In the past, when looking at the hedging costs of Internet stocks I've used 25% decline thresholds, but a couple of these names, Groupon Inc. (GRPN) and Zynga, Inc. (ZNGA), were too expensive to hedge using 25% thresholds (i.e., the cost of hedging each of them against a greater-than-25% decline was itself greater than 25%, so Portfolio Armor indicated no optimal contracts were found for them). The lowest decline threshold it was possible to hedge ZNGA against was 33%, so that's the threshold I've used for it and all the other names below.

The optimal puts for QQQ

Below is a screen capture showing the optimal put option contract to buy to hedge 100 shares of QQQ against a greater-than-33% drop between now and September 21st. A note about these optimal put options and their cost: to be conservative, Portfolio Armor calculated the cost based on the ask price of the optimal puts. In practice an investor can often purchase puts for a lower price, i.e., some price between the bid and the ask (the same is true of the rest of the names below).

Hedging costs as of Wednesday's close

The table below shows the costs, as of Wednesday's close, of hedging these names against greater-than-33% declines over the next several months. Costs are presented as percentages of positions value.

 

Symbol

Name

Hedging Cost


2011 Tech IPOs
GRPN Groupon, Inc. 22.4%*
LNKD LinkedIn 6.27%**
P Pandora Media, Inc. 15.5%***
ZNGA Zynga Inc. 27.8%***

Big Cap Tech Stocks
GOOG Google, Inc. 0.66%***
MSFT Microsoft Corporation 0.46%*
INTC Intel Corporation 0.71%*
CSCO Cisco Systems, Inc. 0.78%*
AAPL Apple Inc. 0.36%*

Comparison ETF
QQQ PowerShares QQQ Trust 0.85%***


*Based on optimal puts expiring in July

**Based on optimal puts expiring in August

***Based on optimal puts expiring in September


A Tale of 2 IPOs

Any investor paying attention should know this last week was the busiest IPO week in the U.S. in years. The slate was headlined by well-known Facebook game maker Zynga (ZNGA), with secondary focus on Jive Software (JIVE) and luxury retailer Michael Kors (KORS). The rest of the IPO's had limited focus. Already knowing the issues with Zynga are similar to Groupon (GRPN) and Angie's List (ANGI), we

Why Angie’s Shouldn’t Be Listing An IPO

Angie's List (ANGI) offers independent reviews of local service providers via its subscription-based web platform since it was founded in 1995. At first glance, ANGI provides a more proprietary system with a defensible moat than fellow internet listings of Groupon (GRPN) that recently listed or Zynga (ZNGA) that is in the process of listing. ANGI would appear to be a more attractive

Why Angie’s Shouldn’t Be Listing An IPO

Angie's List (ANGI) offers independent reviews of local service providers via its subscription-based web platform since it was founded in 1995. At first glance, ANGI provides a more proprietary system with a defensible moat than fellow internet listings of Groupon (GRPN) that recently listed or Zynga (ZNGA) that is in the process of listing. ANGI would appear to be a more attractive
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