MorningWord 11/4/15: When the Music Stops

by Dan November 4, 2015 9:30 am • Commentary

On CNBC’s Fast Money last night, I was asked for thoughts on Groupon (GRPN) missing Q3 estimates, guiding down Q4 and booting their second consecutive co-founder from the CEO role.  At the time the stock was halted (it’s down 30% in the pre-market).

Here are my extended thoughts. While the daily deal platform is in fact a business, it’s not clear that it will every be a profitable business. As the company pivoted away from a format that might have been an internet fad, they ended up facing far steeper competition selling direct to consumer, facing off directly with the likes of Amazon.  My solution is simple, this company does not need to exist. When the stock price is near their almost $1 billion cash balance (the market cap is about $1.75 billion the pre-market) they should just shut down and give the cash back to beleaguered shareholders.

And the same goes for Zynga (ZNGA), the maker of mobile games who also reported a disappointing Q3 last night, delayed two game releases and relieved their CFO of duty.  Here is another situation where the once darling is now hovering just above all time lows, has no debt and a little less than 50% of its market cap in cash.  The longer this company operates the closer it becomes to being a liquidation candidate.

But why are we talking about theses stocks?? Because yesterday it was announced that King Digital (KING), maker of casual mobile game Candy Crush,  agreed to be acquired for $5.9 billion, or about $18 a share, well below the company’s March 2014 IPO price of $22.50.  To put this purchase price in some context, Disney (DIS) paid much less ($4 billion) for Lucasfilms in 2012. You know, the production company that made the Star Wars movies and is about to release a new one in December that will gross more than $1 billion worldwide, with hundreds of millions of toys and other crap already being gobbled up left and right.

So we are talking about these stupid stocks because stupid companies keep doing stupid deals.  At some point in the not so distant future, when this game of musical chairs ends, we will be reminded what winding unprofitable companies down looks like.