Thursday, July 26, 2012

Wall Street, Zynga, Facebook and 2000 tech bubble redux?

The love of new technology (and new technology IPO's) by Wall Street conjures up memories of  some prior failures of Wall Street analysts!

Who can forget the go-go years of technology and the NASDAQ when a a lack of sales, simply creating a web site or a having a seemingly great new idea justified bringing an IPO to market at company valuations too high to even fathom let alone justify by any metric ever used in the past.

Analysts like Henry Blodget, then of Merrill Lynch and now barred from the securities industry, would fall over each raising stock price targets to gain notoriety but at the same time being the catalyst for huge daily moves in stock prices.

With the bursting of the tech bubble one would have thought that those days of big price targets and inadequate actual analysis of companies in favor of reliance on the companies for information would have been gone for good.

Not so fast! If experience tells us anything it's that history has a habit of repeating itself and that there will always be bankers and underwriters willing to earn big fees if the public is willing to purchase a new offering.

With recent price targets for Apple of over $1,000 (the company this week reported disappointing earnings and guidance) and the failed Facebook offering (earnings release today) it seems that the past has once again become the present on Wall Street.

For me this brings out the large yellow caution flag (despite the rally today based on the rhetoric of the ECB).

Zynga misses miserably and analysts whine and blame the company for not telling them this would be the case!

The point that I am trying to make here is that it was always my belief that it was an analysts job to take what a company says with a grain of salt and do their own research and legwork to find value-added truths about future prospects for their clients.

Once again I am proven wrong as analysts are blaming Zynga for not letting them know earlier that the company's prospects were not that good.

Weren't these analysts aware that playing a game on mobile was not easy to do or that fads such as internet games come and go?

I guess not or I guess the company just forgot to tell them!

Case in point is Richard Greenfield who is an analyst at BTIG and who had a buy rating on Zynga prior to the earnings release. He said in a statement after the conference call and after he cut his rating to neutral after the stock was trading down 40% what he should have known and told his clients yesterday!

"We are sorry and embarrassed by our mistake. Right now, everything is going wrong for Zynga. In a rapidly changing Internet landscape that is moving to mobile, it’s very hard to have confidence these issues are temporary.”

Thanks for nothing!

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