Thursday, July 26, 2012

Zynga insiders cash out at the right time

My security detail and I are met by unfamiliar face and his own security detail. We stand in front of United Overseas Bank Plaza One. We quickly disappear inside the tower and head towards the elevators. Not a single word besides our greeting has been spoken. I can feel the tension and excitement mixed with opportunity and mystery in the air. This will be a good one, I think to myself.

As we enter the elevator unfamiliar face hits the button which takes us to the 60th floor, the Si Chuan Dou Hua restaurant. I decide to break the silence and ask what we are doing at the restaurant after hours. You will be presented with a deal by my employer is the response I get. A deal by the GNU I think. The elevator door shuts and we begin our fast ascend to the 60th floor of the building.

Did you hear about the Zynga insider cashout?

This was a rather unexpected question from unfamiliar face. I turn to my side and shake my head. This little event was not on my radar screen and I did not really care about the Zynga hype since its IPO and even before that. I do appreciate the small talk and ask him t give me the short version. He seems rather excited about the opportunity and as we head to the 60th floor he informs me that Zynga insiders have cashed out over $500 million during its secondary listing back in April.

Zynga insiders sold 43 million shares at a price of $12 per share during the offering in April and four months later the price dropped 75% to roughly $3 per share after a disastrous earnings report. Maybe insiders knew that the IPO was nothing more than a hype amidst desperation by investors. Whenever insiders sell you their shares at an IPO or secondary offering you need to understand that they do that for a reason.

The biggest winner of Aprils secondary offering seems to be Zynga's CEO who sold 16.5 million shares and pocketed a cool $200 million. He knew there were severe problems on the horizon and cashed out while the share price was flying high. Other members of senior management who sold shares to the idiots who thought they could outsmart insiders include Zynga's CFO and COO who sold 386K shares for $4.6 million and 322K shares for $3.9 million respectively. Zynga's General Counsel sold 315K shares for $3.8 million.

Venture Partners cashed out $70 million by selling 5.8 million shares and Union Square Ventures sold 5.2 million shares for $62 million. Other major sellers include Google and SilverLake Partners who unloaded 4 million shares each for $48 million while another big insider sold 688K shares for $8.2 million. 

I personally don't know how dumb you have to be to buy from insiders who are trying their best to get out of an over-hyped opportunity. Those guys only sell because they know something you do not. Yes, it is legal for them to unload during secondary offerings and this is not the first post IPO stock that has collapsed. Just because investors desperately want and need a certain IPO to perform well does not mean it will. As a general rule of thumb, do not buy when insiders are selling a lot of shares.

As we arrive at the Si Chuan Dou Hua restaurant I thank unfamiliar face for the update. The elevator stops and the doors open. We finally enter our final destination for the night where I may meet my new contractors for what I think may be a top secret contract surrounded by a lot of controversy. The elevator doors open and we step out one by one.

The picture in the top left corner was downloaded for free use at


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