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Amid Facebook IPO Hype, Pros Pass On Zynga

Thursday, 2 Feb 2012 | 5:30 PM ET

Zynga shares soared almost 17 percent Thursday amid Facebook IPO hype , but “Fast Money” pros aren’t buying the stock.

“I think the stock is not trading on fundamentals today. It’s trading on, completely, the hype around the Facebook IPO , and I think once people realize that relative to the fundamentals this is too expensive, sometime in the near future, I think the stock is going to be give back the gains that it’s had,” Sterne Agee analyst Arvind Bhatia said. “We would recommend selling this stock aggressively here.”

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Bhatia held an “underperform” rating on the stock and a price target of $7 per share.

Zynga, which held its initial public offering in December at $10 a share, watched its stock languish below that level in the following month.

Shares closed at $12.39, up 16.8 percent.

Bhatia said some investors were making the flawed argument that Zynga, which accounts for 12 percent of Facebook’s revenue, should receive a similar valuation.

“They are forgetting the following things: One, the growth rate that Zynga has is half the rate of Facebook, despite the fact that Facebook is a much bigger company,” Bhaitia said. “Second, Zynga’s EBITDA margins are half that of Facebook. Again, why is that? Because Facebook is a platform. Zynga is not. Facebook’s EBITDA’s margins in 2011 were up 80 percent. Zynga’s were down 20 percent. So a dollar of Zynga revenue was not the same as a dollar of Facebook revenue.”

Facebook filed for an IPO on Wednesday, looking to raise $5 billion.

Brian Kelly of Shelter Harbor Capital wasn’t a buyer.

“It’s a company that sells virtual farm animals. I wouldn’t even buy it with the Najarians’ money,” he said. “I’m not saying it’s not a successful company. I’m just saying it’s not something I want to invest in. At some point, people stop buying fake farm animals and then the company won’t do so well.”

Jon Najarian, cofounder of OptionMonster.com, said the time to buy was when the stock was priced in the mid $9 range.

“Up here at $12 on this rush into the Facebook IPO is equally a place to sell it,” he said.

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Trader disclosure: On Feb. 2, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; J. Najarian is long CME; J. Najarian is long CBOE; J. Najarian is long CIGX; J. Najarian is long APPL calls spreads ; J. Najarian is long RIMM calls spreads; J. Najarian is long GS calls spreads; J. Najarian is long XLF calls spreads; J. Najarian is long CROX calls spreads; J. Najarian is long FIO calls spreads; J. Najarian is long NBR calls spreads; J. Najarian is long RRC calls spreads; J. Najarian is long WLT calls spreads; J. Najarian is long RSE calls spreads; J. Najarian is long GGP calls spreads; J. Najarian is long GDX calls spreads; J. Najarian is long GDXJ calls spreads; Cortes is long treasuries; Cortes is long SO; Cortes is long MO; Cortes is short crude; Cortes is short CAD; Cortes is short FSLR; Grasso is long AVAV; Grasso is long ASTM; Grasso is long BA; Grasso is long D; Grasso is long LIT; Grasso is long MHY; Grasso is long MO; Grasso is long PFE; Grasso is long PRST; Grasso is long S; Grasso is long XLU

For Brian Kelly
Shelter Harbor Capital is long XLF

Shelter Harbor Capital is long KRE

Shelter Harbor Capital is long KOL

Shelter Harbor Capital is long EWZ

Shelter Harbor Capital is long copper

Shelter Harbor Capital is long GLD

Shelter Harbor Capital is long SLV

Shelter Harbor Capital is short yen

For Steve Grasso
Stuart Frankel & its partners own CSCO

Stuart Frankel & its partners own CUBA

Stuart Frankel & its partners own GERN

Stuart Frankel & its partners own HPQ

Stuart Frankel & its partners own HSPO

Stuart Frankel & its partners own MU

Stuart Frankel & its partners own NYX

Stuart Frankel & its partners own PRST

Stuart Frankel & its partners own XRX

Stuart Frankel & its partners own ZNGA

For Arvind Bhatia
(ZNGA) Sterne, Agee & Leach, Inc. makes a market in the shares of the subject company

  Price   Change %Change
ZYGNA
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