“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, January 13, 2020

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Option Trade – Zynga Inc (NASDAQ: ZNGA) Calls

Friday, January 17, 2020

** OPTION TRADE: Buy the ZNGA JUN 19 2020 8.000 CALLS at approximately $0.27.

Place a high pre-determined sell at $1.00. This can be adjusted accordingly.

Mobile game maker Zynga Inc (NASDAQ: ZNGA) has increased its guidance three times last year. Profit margins have rebounded, and sales are growing at their fastest pace since the game developer went public in 2011. Zynga is “on track to be one of the fastest-growing -- if not the fastest-growing -- gaming company at scale,” Zynga Inc.’s CEO Frank Gibeau said.

Zynga shares have nearly tripled to $6.81 since Gibeau, now 51, took over as chief executive officer. That includes a 56% gain in 2019, eclipsing the S&P 500’s 29% increase.

The stock is still far below its post-IPO high set in 2012, when the exuberance around social media propelled Zynga to almost $16. But shareholders and Wall Street analysts are embracing the company again.

“Investors like a good turnaround story,” said Colin Sebastian, an analyst at Robert W. Baird & Co.

Along the way, Gibeau reinvented what Zynga is about. It now makes only a sliver of its money from Facebook-based games, which gave the company a reputation for delivering endless requests and notifications to social-media users.

Instead, Zynga focuses on stand-alone titles that consumers play on their phones. They include Words With Friends, Zynga Poker, and Merge Dragons! which lets players combine dragon eggs and treasures to produce skills and objects.

Zynga also has used acquisitions to dial up growth. In 2018, it agreed to buy controlling stakes in Small Giant Games for about $560 million and Gram Games for $250 million. And it has a war chest of cash and short-term investments that’s approaching $1.5 billion, which could be used for additional deals. To raise money, Zynga has sold bonds and made more than $300 million from unloading its San Francisco headquarters in a leaseback deal last year.

Moving Forward…..

Zynga is preparing to reinvent itself again by embracing new platforms and devices -- no matter what they may end up being.

“Ten years from now, I know for a fact that the platforms will be different,” Gibeau said. “There could be other platforms -- like streaming platforms, cloud-based gaming.”

The video-game consoles that dominated the industry for so long may not exist in a decade, opening the door to other options, Gibeau said. “I want our games to be playable on anything, even if it’s a toaster or refrigerator.”

Zynga has already jumped onto Snapchat. And while it hasn’t provided details on what else is in the works, the company is developing a new multiplatform strategy.

“We have a saying, ‘Make platform transition your friend,’” Gibeau said. “You can turn yourself out of position, which frankly Zynga did by being so focused on Facebook.”

Analysts’ Comments.....

“The company has significant live-services expertise and has a strong advertising platform, so it can help rapidly scale promising games as they come to market,” said Matthew Kanterman, an analyst at Bloomberg Intelligence. “All in, Zynga is on firm footing for the next few years.”

KeyBanc's Tyler Parker resumed coverage of Zynga with an Overweight rating and price target of $8.50.

Mobile is the largest and fastest growing segment of the gaming industry, Parker said in a note. It continues to grow in terms of the percentage of time people spend on their phones, and as technology evolves and connectivity both broadens and speeds up as 5G comes into play, higher quality gaming will be possible, he said.

The changing technology is allowing "deeper and more quality games," that are not only better for players, but are being monetized more effectively by companies.

KeyBanc favors mobile-first publishers with scaled and growing portfolios that put emphasis on driving growth through live services.

"We believe the mobile gaming market is attractive given the strong growth expected over the next few years, which should benefit scale mobile-first publishers," Parker wrote in a note.

Zynga, with "proven brands and a deep pipeline," are the draw, along with expanding margins and possible merger and acquisition opportunities.

SunTrust analyst Matthew Thornton initiated coverage of shares of the gaming company with a buy rating and a $7.50 share price target.

Thornton said in a note to investors that the San Francisco-based company, which owns such franchises as Empires & Puzzles, Merge Dragons, and Words With Friends, "provides pure-play exposure to the large and fast growing global mobile game market" with a growing and diversified game portfolio and "highly experienced management team and Board."

"In addition to a healthy existing portfolio, ZNGA has a strong pipeline (at least 7 games, including FarmVille, Harry Potter, Star Wars, Game of Thrones, and others) as well as a strong balance sheet (>$1.4b in cash) and acquisition track record (Small Giant, Gram Games) to augment organic growth with M&A in what is a highly fragmented market," Thornton said.

He said that he expects the company to see upside to consensus expectations over the next several years.

Nearly 100% of Zynga’s pro forma growth in the third quarter came from titles that were acquired under the current leadership team during the past two years, Thornton said, adding he believes mergers and acquisitions are one of Zynga's core competencies.

Thornton said he expects inorganic growth to remain a core piece of Zynga's strategy.

"Our own conversations with private mobile game publishers suggest to us that a sale to Zynga (under the current team) is generally viewed as a desirable outcome," he said.

Baird analyst Colin Sebastian’s Top Pick is social game developer, Zynga. Zynga’s most famous game is Farmville, which was the first game on Facebook to reach 10 million daily active users. Other titles include Zynga Poker and Words with Friends.

Sebastian said, “Mostly, we like Zynga for the visibility from live services, new title launches, potential for more M&A, and 2H improvement in EBITDA margins. Also, we note console transition-year volatility is a bigger near-term risk for traditional game publishers.”

The analyst kept his Outperform rating on Zynga, alongside a price target of $8.

Cowen’s Doug Creutz is a fellow fan of Zynga. The analyst also named Zynga as a ‘’best idea for 2020’’ and called it "the most consistent company in the mobile gaming vertical over the last few years." Creutz, too, reiterated an Outperform rating on the game developer, and kept his $7 price target.


Option Trade – Cyberark Software Ltd (NASDAQ: CYBR) Calls

Wednesday, January 15, 2020

** OPTION TRADE: Buy the CYBR APR17 2020 145.000 CALLS at approximately $7.00.

Place a high pre-determined sell at $14.00.

Include a protective stop loss of $2.80.

The cyber-security field is a hot space. Organizations have been grappling with the issue of cybersecurity for a long time. Cyberattacks are responsible for massive losses. In fact, per Absolute Markets Insights data, cyberattacks can cost companies almost $5.2 trillion every year.

In fact, foreign exchange company Travelex revealed that it is the most recent victim of the Sodinokibi ransomware, for which, it might have to pay a ransom of $6 million.

BBC said that the attackers hacked into the company’s computer systems around mid-2019 and downloaded 5GB of sensitive customer data like date of birth, credit card information and national insurance numbers.

Cyberattacks are not only affecting companies but also threatening the national security of some countries. The U.S.-Iran proxy war may now turn into a direct one in the digital arena. U.S. cybersecurity firms working with the Trump administration are reporting multiple evidences of spear-phishing emails from Iranian hackers.

However, with such an increase in the use of technology and the growing issue of cyber-security threats, the number of companies competing to protect the networks of Fortune 500 companies has become intensely competitive.

An antivirus alone cannot provide protection from a zero-day ransomware attack. Due to the growing incidences of ransomware attacks, vendors now are offering defense approaches and decryption tools to help ransomware victims.

Firms primarily need to focus on protecting their business from insider threats, phishing scams and exposed databases.

This provides ample growth opportunities for cybersecurity firms like Cyberark Software Ltd (NASDAQ: CYBR), headquartered in Petach Tikva, Israel, which provides cyber-security solutions that many other companies do, but its core product occupies a niche space that it has positioned itself as the industry leader in, privileged account management. This security solution, along with diversification in its offerings from recent strategic acquisitions, and the general tailwinds in the industry provide a nice setup for CyberArk to trend higher in the near future.

Privileged account management, to put it simply, restricts unauthorized users from accessing a company's most confidential and important data and information. Privileged account management is used by less than half of large enterprises currently; however, estimates are that this figure will increase to 75% by 2020. As cyber-security attacks continue to grow, it will be increasingly essential for security managers of large firms to protect its most critical information, and this is where solutions developed by CyberArk come into the equation.

Counting over 5,000 businesses as clients, CyberArk works with more than 50% of the Fortune 500 and over 30% of the Global 2000.

Despite competition from several large and smaller players, the International Data Corporation recognized CyberArk as the forefront of the industry with leading capabilities and strategies as well as the largest revenue base and customer base in the PAM security space.

About Cyberark Software……

CyberArk Software Ltd. engages in the development, market, and sale of access security software solutions. It operates through the following geographical segments: United States; Israel; United Kingdom; Europe, the Middle East and Africa; and Other. Its products include core privileged access security, application identity and endpoint privilege manager, and Conjur.

Earnings.....

Over the last three quarters, CyberArk has been growing earnings at an average pace of 58% per quarter. Sales growth has ranged from 22% to 36% over the last eight quarters. Analysts expect EPS to rise 27% when the company reports full-year 2019 results on Feb. 12, followed by an estimated 7% increase in 2020.

Analysts’ Opinions.....

Cyberark Software was upgraded by equities researchers at BidaskClub from a “hold” rating to a “buy” rating in a note issued to investors on Saturday.

Several other equities analysts have recently commented on the company…..

  • Evercore ISI set a $140.00 price target on shares of Cyberark Software and gave the company a “buy” rating in a research note on Monday, November 4th.
  • ValuEngine raised shares of Cyberark Software from a “sell” rating to a “hold” rating in a research note on Friday, November 1st.
  • Finally, Needham & Company LLC reaffirmed a “buy” rating and set a $145.00 price target on shares of Cyberark Software in a research note on Wednesday, November 6th.

Five equities research analysts have rated the stock with a hold rating and fourteen have issued a buy rating to the company. The company presently has a consensus rating of “Buy” and a consensus price target of $139.00.

Summary.....                

The demand for cybersecurity solutions is expected to remain healthy owing to the increasing frequency and the technologically advanced nature of cyberattacks..

Cyberark Software has a market cap of $5.14 billion, a price-to-earnings ratio of 95.26, a PEG ratio of 5.32 and a beta of 1.59. The firm’s fifty day moving average is $121.56 and its 200 day moving average is $117.40. Cyberark Software has a 52-week low of $74.86 and a 52-week high of $148.74.