2015_03_24 Final Research Report - Zynga (FINAL COPY) PDF

Ticker: NASDAQ: “ZNGA” Recommendation: HOLD

Price: $2.70 Price Target: $3.10

Recommendation:

Voltron Capital Investments (VCI) issues a hold recommendation for Zynga (ZNGA) with a target

price of $3.10. Using a weighted blend of forward Price/Sales (60%) and EV/Sales (40%) multiples

the VCI estimate recognizes a 14.8% potential upside from the current share price of $2.70. Using

these metrics VCI currently considers ZNGA to be undervalued. There are several outstanding issues

to consider, such as an over allocation of funds towards (intangible) asset growth, uncertainty

concerning new games coming through the pipeline in 2015, and a lack of operational efficiency.

Zynga’s lack of prior performance since their IPO has cast doubts about the firm’s ability to deliver

profitable returns. Therefore, VCI currently advises a hold strategy for Zynga with a possible buy

rating in the future based upon proven profitability through increased revenue, operational efficiency,

and positive cash flows.

Highlights:

Zynga Hybrid Strategy “Mid-Core” & Foray into “Real-Money” Gaming Models

Mid-Core games seek to combine the high engagement of core strategy games with the quick

adoption characteristics of casual games. This will provide an in depth gaming experience to a more

broad and diverse user base. Hopefully this approach will appeal to more users across multiple

platforms to increase player retention while engaging more casual users to pay for in-game upgrades

and items. Zynga’s first step to entering the lucrative (49% of the market) RPG gaming segment was

BattleZone in 2013. Zynga’s new release from the acquisition of NaturalMotion, Dawn of the Titans,

is the next step in the gaming evolution for the company.

Zynga is pursuing the “Real-Money” gambling platform of social gaming with titles such as

ZyngaPlusPoker & ZyngaPlusCasino overseas in counties such as the U.K. The international gaming

market is valued $32b which Zynga can exploit to its benefit. Zynga faces stiff competition from

established names in the Casino Industry, such as Caesars Entertainment, who currently operates in

Europe through the acquisition of social and mobile game maker Playtika. The Legal aspects of

gambling within the U.S. are being resolved on a state-by-state basis, due to this, Zynga is not

currently pursuing a U.S. gaming license.

Zynga Shifting Away from Legacy Social Platforms

Zynga’s ever more increasingly complicated and deteriorating relationship with social networking

platform giant Facebook is driving the two companies in different directions. In Q1, 2013 Zynga no

longer required a Facebook log-in to access its games. Zynga subsequently launched a 3rd party

platform for social game development. This should help insure that Zynga is producing desirable

quality titles that will be readily adopted by the public.

Dependence on Established Titles

High dependence on past top performing titles such as the FarmVille series and Texas HoldEm Poker

may be a risk to Zynga’s future cash flows as the current users lose interest in favor of new and more

intricate apps.

Social Networking Market Expansion

Facebook boasts over a billion active users worldwide, but there is still room to grow as 85% of the

world’s population has yet to adopt a stance on social platforms. Zynga can leverage its large base of

current users and past user information to market its existing titles and cheaply inform its clientele of

new games coming down the pipeline.

*(reference source: www.Trefis.com)

Valuation Measures

Market Cap (intraday)5:

2.46B

Enterprise Value (Mar 21, 2015)3:

1.54B

PEG Ratio (5 yr expected)1:

-2.25

Price/Sales (ttm): 3.5

Price/Book (mrq):

1.27

Enterprise Value/Revenue (ttm)3:

2.24

Enterprise Value/EBITDA (ttm)6:

-14.74

Share Statistics

Avg Vol (3 month)3:

15,494,300

Avg Vol (10 day)3:

16,438,800

Shares Outstanding5:

911.65M

Float: 691.80M

% Held by Insiders1:

11.51%

% Held by Institutions1:

63.50%

Shares Short (as of Feb 27, 2015)3:

71.04M

Short Ratio (as of Feb 27, 2015)3:

4

Short % of Float (as of Feb 27, 2015)3:

9.80%

Shares Short (prior month)3:

68.87M

Trading Information

Stock Price History

Beta: 1.8

52-Week Change3:

-42.55%

S&P500 52-Week Change3:

13.49%

52-Week High (Mar 25, 2014)3:

5.08

52-Week Low (Feb 13, 2015)3:

2.2

03/24/2015

Industry: Software Sector: Technology

Sub-Sector: Social Network Game Development

Voltron Capital Investments (VCI) March 24, 2015

2

U.S. Consumer

Sentiment

U.S. Consumer

Price Index

Zynga Stock Price Zynga Timeline:

February 2014 – (Rise in price) - Zynga CEO Don Mattrick stated that the mobile video game

company is about halfway through his turnaround efforts at a Game Developers Conference.

Zynga acquired the U.K.-based game maker NaturalMotion for $527 million. NaturalMotion

employs a game strategy more focused on creating a quality experience than maximizing

monetization, something that represents a change in strategy for Zynga.

March 2014 – (Decline in price) - Zynga share price declines massively due to King IPO. Zynga

trades lower after Facebook announces Oculus VR acquisition. Board approves a $250k salary

increase for Founder/Chairman Mark Pincus as well as stock options bonuses for other officers.

May 2014 – (Decline in price) - Soros cashed out more than 80% of his stake in both Microsoft

Corporation and Zynga after investing in both companies for less than one year. King games

surges in buy recommendations and value with increases in revenue. Investors switch over

from Zynga to king en mass

October 2014 – (Decline in price) - Board approved salary and bonus increases in compensation for

certain officers as well as additional stock, amounting to $75,000 in cash and 700,000 Class A

common shares. News of a sell rating by several prominent financial sites reaches investors

with concerns about Zynga’s lack of and decreasing performance.

Business Description:

Zynga Inc. develops, markets, and operates online social games as live services played on the Internet, social networking sites, and mobile

platforms in the United States, Asia, and Europe. The company offers its online social games under the FarmVille, Words With Friends,

Zynga Poker, Hit It Rich! Slots, CSR Racing, FarmVille 2: Country Escape, NFL Showdown, New Zynga Poker, New Words With

Friends, Wizard of Oz Slots, Looney Tunes Dash!, CSR Classics, and Clumsy Ninja names. Its games are accessible on Facebook and

other social networks, mobile platforms, and Zynga.com. The company was formerly known as Zynga Game Network Inc. and changed its

name to Zynga Inc. in November 2010. Zynga Inc. was founded in 2007 and is headquartered in San Francisco, California.

CEO Donald Mattrick said that Zynga’s new focus included the following: “Before I detail out our results, I would like to share the three

areas of focus that myself and our team have been applying energy against. The first area is how we grow and sustain hits that consumers

have validated over multiple years. The second area is how we enhance our capabilities to create new hits. The third is how we do both of

the above in a more efficient manner. These are the areas of focus that we have been applying to take our business into the future.”

*(reference source: 10K: Interview from www.VentureBeat.com)

Macro Analysis: Other Headings Relevant to Company

Consumer Confidence/Sentiment

Since January 2015, U.S. consumer confidence had experienced a decrease of 4.4% from 95.4 in January to

91.2 in February. This decline in consumer sentiment was due to renewed concerns over employment and

wage growth as well as a pessimistic outlook for the domestic economy.

Recent declines in oil prices and general increases in wage growth have significantly helped lower income

households by contributing to a marginal increase in overall consumer savings. Although consumers widely

anticipate that oil prices will eventually stabilize during the year overall consumer sentiment will most likely

plateau within the next few months. These trends should allow for excess disposable income to be spent on

leisure activities such as mobile gaming.

Consumer Price Index

The Consumer Price Index records the changes in price paid for a basket of goods and services. From January

2015 to February 2015 the CPI changed from 236.28 to 234.67. The decrease in values indicates that a

basket of good costs less from the previous month. This decrease in price is a .68% change from January to

February. This increase in excess consumer liquidity will add to disposable income that can be used for

leisure activities.

Initial Jobless Claims

Initial jobless claims have a significant impact on financial markets because unlike continued claims data,

which measures the number of persons claiming unemployment benefits, Initial jobless claims measures new

and emerging unemployment. This page provides - United States Initial Jobless Claims - actual values,


3

Initial Jobless

Claims

Gross Domestic

Product

Unemployment

Rate

Major Industry

Players (www.IbisWorld.com)

Key Industry

Statistics (www.IbisWorld.com)

historical data, forecast, chart, statistics, economic calendar and news. Content for - United States Initial

Jobless Claims - was last refreshed on Saturday, March 7, 2015.

The advance seasonally adjusted insured unemployment rate was 1.8 percent for the week ending February

21, 2015, unchanged from the previous week's unrevised rate. The advance number for seasonally adjusted

insured unemployment during the week ending February 21, 2015 was 2,421,000, an increase of 17,000 from

the previous week's revised level. The previous week's level was revised up 3,000 from 2,401,000 to

2,404,000. The 4-week moving average was 2,403,500, an increase of 3,750 from the previous week's revised

average. The previous week's average was revised up by 750 from 2,399,000 to 2,399,750. As jobless claims

continue to fluctuate, there’s an ample base of unencumbered free time for people to use towards other

pursuits such as mobile gaming provided by Zynga. Therefore, although Zynga may not be directly growing

its revenue base, it may continue to grow in popularity and realize revenues in the future.

Gross Domestic Product

From 2013 to 2014 the U.S. GDP increased from 16,244.6 to 16,800 Billion, or an increase of 3.42%. This

indicates that the United States Economy is in a healthier state than last year. Also, it is important to note that

the 2014 figure is an all-time high for the U.S. Economy as reported by the World Bank.

GDP grew at a seasonally adjusted rate of 2.2% for Q4 of 2014. This shows slow but steady growth ending

2014 and relays a positive sentiment for 2015. This implies that as the economy slowly recovers, the

corresponding rise in wages will create more disposable income to be spent on non-essential items and

activities.

Unemployment Rate

In the United States, the unemployment rate measures the number of people actively looking for a job as a

percentage of the labor force. The Unemployment Rate in the United States decreased by 3.5% from 5.70

percent in January of 2015 to 5.50 percent in February of 2015. It is the lowest figure since May of 2008 as

the number of unemployed persons decreased steadily. There were 8.7 million unemployed people in February, down from 8.97 million in the previous month. Over

the year, the unemployment rate and the number of unemployed persons went down by 1.2 percentage points

and 1.7 million, respectively. As more people re-enter the job market, a greater influx of household income

will generate excess liquidity that can be used for leisure activities.

Industry Analysis and Competitive Positioning:

The industry that Zynga Inc. operates in is Social Network Game Development as defined by Ibisworld.com.

As a whole the industry generated $7.9 Billion in Revenues for fiscal year 2014 with a profit of $1.3 Billion.

The industry has been able to grow at a CAGR of 58.4% for FY’s 2009-2014 and is projected to have a

forward CAGR of 11.7% for FY2014-2019. The growth of this industry can be attributed to the adoption &

proliferation of the internet, social networks, networking websites, and smartphone connectivity &

proliferation. Another reason for this growth is new markets. The older demographics that do not play

traditional video game consoles are adopting games on their smartphones and tablets. The Social Network

Game Development industry is comprised of 2,764 businesses and it pays out $3.3 Billion in wages.

The top three companies in the industry with market share are Electronic Arts Inc. with 6.6%, Zynga Inc.

5.4%, and The Walt Disney Company with 5.2%. Electronic Arts’ brand name games include Playfish,

PopCap Games, Pet Society, Restaurant City, EA Sports, FIFA Superstars, SCRABBLE, Madden NFL

Superstars, World Series Superstars, The Sims Social, and Bejeweled. Zynga’s brand name games include

FarmVille, CityVille, FrontierVille, PetVille, Empires & Allies, Café World, Mafia Wars, Texas Hold'Em

Poker, Words With Friends, and Hanging With Friends. The Walt Disney Company’s brand name games

include Playdom, Gardens of Time, Wild Ones, Bola, City of Wonder, Sorority Life, Social City, ESPNU

College Town, Mobsters, NBA Dynasty. The fourth largest company is CrowdStar and their brand name

games include Happy Aquarium, Happy Pets, and It Girl.


4

Products and

Services

Major Markets

Key Drivers of the Industry

One of the drivers of industry growth and revenue is the number of internet connections. Each new internet subscriber represents potential

revenue for the social network game development industry. Therefore, the more users of the internet, the more users that are expected to

adopt social networking games.

Another driver of revenue is disposable income. The higher the disposable income each game user has, the more virtual currency they will

buy generating revenue for the industry. Also, the more time spent on sports, the more leisure time there is available, which is positively

correlated with industry performance. The more time that individuals spend at leisure, the more revenue the industry receives. However,

leisure time is projected to decline in 2015 which may contribute to a decline in industry revenues. Lastly, the increasing number of

mobile internet connections worldwide will help increase and grow the user base of social networking games. People on the go can still

play, enjoy, and spend money on games with their phone’s mobile connectivity.

Industry Growth and Adoption

The industry has seen huge growth over the past 4 years as gaming has expanded across social networking websites. This not only allows

the gamer to play the game with friends but to also communicate and interact with other users abroad. Another way firms have been

growing is through acquiring companies with cutting edge technology to expand product offerings. Within these social networking games

virtual currency is sold to the gamer. The virtual currency is then used to buy premium features within the game. A higher number of

players per game correlates with higher amounts of virtual currency purchased in-game. Another revenue stream in the social network

gaming industry is from corporate advertising. Advertising space within the game is sold to companies wanting to advertise to a specific

social network and demographic. In return, the advertiser pays the gaming development company providing the space.

This industry started to grow during the recession when employees were laid off and became users of social networking games. As the

economy started to come out of the recessionary period, users increasingly spent more money on virtual currency and other premium

features. It is also important to note that virtual currency is highly profitable as there aren’t any costs associated in developing anything

physical. Lastly, the social network gaming industry has a large customer base from which to market current and future products and

games. An increase in market growth is expected in the future, due to a several reasons. Society is increasing the adoption and use of

tablets, computers, and smart phones. This will continue to draw new users and raise gaming revenue. Market growth will also increase for

industry players due to acquisitions of the smaller and more prolific gaming development companies.

Industry Outlook

Revenue will continue to grow at an estimated forward CAGR of 11.7% for FY2014-2019. Revenue growth will slow due to social

network platforms charging game developers more for selling virtual currency on their platform through increased transaction costs. This

will increase the costs for the social network gaming industry. Many companies are expected to enter this saturated industry as the potential

customer base increases. The barriers to entry and startup costs for this industry are low. Growth of revenue in this industry is expected to

benefit from increased disposable income as the economy and wages continue to grow. The industry will benefit from the declining sales of

expensive video gaming consoles converting players from traditional forms to online gaming. Some incentives to switch gaming platforms

are the free-to-play games and no upfront hardware costs. The industry is currently growing and is expected to continue to grow at a slower

but healthy rate in the coming years.

Products and Services

The products and services section will be delineated between customers and vendors. Vendors supply the

industry with products and services including: Data Processing & Hosting Services, Internet Publishing and

Broadcasting, Internet Service Providers, and Software Publishing. The supply chain necessitates that there

are certain vendors needed to get an app from development to the end-users. Customers of the industry

include gaming consumers and advertising agencies that buy space online.

The social network game development industry is broken out into different gaming segments. The gaming

segments include Role playing games at 49%, Dating games at 17.2%, Content-sharing games at 15.9%,

Puzzle games at 9.9%, Gambling games at 6.6%, and Other games at 1.4% market share.

Major Markets

The major demographics generating revenue in the gaming industry include Women age 40 and over at

27.9%, Advertisers at 21.6%, Women under 40 at 14.4%, and Men under 40 at 12.2% market share. This

makes sense considering that revenue is positively correlated with leisure time and disposable income.

Female homemakers with children represent the account holders for the gaming devices used by both

themselves and the kids. Women in this age group most likely have the highest disposable income and leisure

time.

It is also important to note that most men are probably still using traditional gaming consoles. This is due to

internet gaming not being available when they began playing games and developing gaming habits.


5

Sector VS

Industry

Standards

Key Growth

Rates (10K Balance Sheet)

Key Growth

Rates (10K Balance Sheet)

Asset CAGR VS

Sales CAGR (10K Balance Sheet)

Therefore, they have already adopted the traditional gaming console as a first option for recreation and will

most likely stay with that platform unless incentivized to change. The factors that influence this user to

switch to internet gaming would be price sensitivity to new gaming consoles and a decline in users playing

the traditional gaming formats. Trends indicate that players desire interaction with their friends while

gaming. As their friends move to online gaming, they too will be inclined to migrate. Future percentages of

revenue coming from men, of all ages, is likely to increase as they will eventually move to adopt internet

gaming as their main gaming or ancillary gaming platform.

Cost Structure

The cost structure compares the social network gaming industry verses all industries within that sector. The

costs include Wages of 41.4%, Other costs totaling 24.5%, Marketing at 7.9%, Depreciation of 6.2%, Rent

and Utilities of 3.0%, and Purchases at 1.2% as a percentage of revenues. When compared to the sector cost

structure, there is a clear discrepancy between the percentages of cost for the differing categories.

Key Success Factors and Competition

The key success factors in this industry include altering goods for market conditions, innovations,

international markets, highly skilled workers, product presentation, customer security, and market research.

One key factor that is scarce is highly skilled gaming developers. Taking this into account, it becomes clear

that wages (SG&A) are the highest percentage of cost reductions to revenues. The next important factor is

market research, this is needed to predict, anticipate, and develop games that customers are interested in

before competitors do.

Competition is high in this industry and is trending upward. Barriers to entry in the industry are low as the

startup capital required is low to medium and app development is a popular investment for angels and early

adopters. Technological change is high in this industry as innovation is driven by technology. This industry is

in a growth stage of the Life Cycle. The globalization within this industry is a key success factor and is

becoming increasingly more important. Globalization necessitates producing games in multiple languages,

focusing on local customs, and expanding to overseas social media websites.

Financial Analysis:

Growth Rates

ZNGA’s sales and asset growth rates both experienced similar declines YoY since the firm’s pre-IPO

preparation in FY 2010. The firm’s sales growth rate reflects a significant decrease by 105.3% from 391.9%

in FY 2010 to -20.9% in FY 2014.

Similarly, the firm’s asset growth rate also experienced a decrease of 99.1% from 329.8% in FY 2010 to

3.1% in FY 2014. This suggests that the firm had accelerated the depreciation of fixed assets since FY 2012,

however ZNGA is a fixed asset light firm that possesses substantial intangible assets. Currently, the firm’s

asset growth significantly outperforms the firm’s sales growth resulting in unsustainable asset growth for the

firm with continued lackluster revenue generation from those acquisitions.

This is further demonstrated by the Asset CAGR of 20.5% outpacing the Sales CAGR of 3.7% by an increase

of 81.95% from 2010 to 2014. This demonstrates that Zynga has all the assets required to fuel future revenue

and sales growth for the foreseeable future.

Liquidity

Financial data provided by Bloomberg reflects a general increase in liquidity since ZNGA’s pre-IPO

preparation in 2010. The firm’s current ratio experienced an increase by a CAGR of 14.0% from 1.74 in FY

2010 to 2.93 in FY 2014. The firm’s quick ratio experienced a similar increase by a CAGR of 14.8% from

1.57 in FY 2010 to 2.73 in FY 2014. ZNGA’s cash ratio also experienced an increase by a CAGR of 15.0%

from 1.42 in FY 2010 to 2.48 in FY 2014.

ZNGA’s liquidity ratios all experienced a significant spike in FY 2013, most likely due to the decrease in the

firm’s current liabilities. The firm reduced its current liabilities from 509.1 in FY 2012 to 276.5 in FY 2013

resulting in an overall decrease of 45.7%.


6

Cash Conversion

Cycle (10K Balance Sheet)

A/P & A/R

Turnover in

Days (10K Balance Sheet)

TA/TE (10K Balance Sheet)

Leverage

Debt/Equity (10K Balance Sheet)

Zynga’s Quick and Current Ratios mirror one another due to the inventory free nature of the business. This

insinuates that Zynga is and will remain a highly liquid business for the foreseeable future.

A/P Turnover, A/R Turnover, Cash Conversion Cycle

Since 2010, the Accounts Receivable turn in days has increased from 26.6 days in FY 2010 to 41.0 days in

FY 2014. This increase is a 54.14% change, implying Zynga is taking longer each year to collect money from

customers. The CAGR for the growth in Accounts Receivables is 12.1%.

The Accounts Payable days decreased from 56.9 days in FY 2010 to 30.7 days in FY 2014; a decrease of -

46.1%. The CAGR for the decrease in Accounts Payables days is -14.29%. Zynga is paying their vendors

faster than they are receiving money from customers. They are not taking advantage of the zero cost financing

they would receive from better balance sheet management. The company is using its excess liquidity to pay

its creditors and not efficiently colleting their A/R, resulting in less cash on hand.

The Cash Conversion Cycle in 2010 was -30.3 compared to 10.3 in 2014. This is an increase of 133.9%.

This demonstrates that Zynga is mishandling its balance sheet by not extending its payables and not

effectively collecting its A/R. This has a detrimental effect on the Free Cash Flow to the Firm.

Total Assets compared to Total Equity has decreased from 2.31x in 2010 to 1.24x in 2014, or a decrease of

46.32%. Zynga’s Total Assets increased sharply from 1,112.6 in 2010 to 2,516.6 in 2011 and since has

plateaued. The CAGR for Total Assets was 20.5% for FY 2010 1,112.6 to FY 2014 2,348.8. Zynga’s Total

Equity also increased sharply from 482.2 in 2010 to 1,749.5 in 2011 and steadily increased year over year to

1,895.7 in 2014. The CAGR for Total Equity was 40.8% for FY 2010 to FY 2014. The growth in both of

these figures from 2010 to 2011 happened in the same time period as their Initial Public Offering. The

implication is that Zynga issued Equity with their IPO and used those funds to invest in Assets to provide a

return to their investors which it has yet to produce.

Zynga’s Total Assets increased from 2010 to 2014. It is important to note that they purchased those assets

with cash from equity and not debt. The Debt to Equity and Debt to Total Capital both indicate that Zynga

was debt free until they incurred a small amount of debt from FY 2011 (IPO) to FY 2012. In FY 2012 Debt

to Equity were 5.48% and their Debt to Total Capital 5.19%. Zynga’s Debt to Equity and Debt to Total

Capital was 0% for years 2013 and 2014 as they were debt free. Zynga’s not using the cheaper cost of debt

to finance growth or benefit from the tax shield. Additionally, they are not following the Pecking Order

Theory that the cheaper cost of debt trumps the more expensive costs of equity.

Profitability

Zynga’s Return on Assets fell from 13.21% in 2010 to -9.76 in 2014, a decrease of 173.88% or a CAGR of

negative 166.2% per year. This is due a decrease in both advertising revenue and player participation in

games such as Mafia Wars and FrontierVille due to shifting popularity to newer gaming titles.

Return on Equity rose from -43.22% in 2011 to -11.97% in 2014, an increase of 72.3% or a CAGR of 34.8%.

This is a result of a significant reduction in revenues, increased spending on acquisitions such as

NaturalMotion, as well as write-offs for various prior acquisitions of $10.2 million.

Acquisition in 2010 and 2011 led to EBITDA Margin fluctuation resulting mostly from increased S,G,&A.

These include net fixed assets, various intangible assets, and IP. From 2010 to 2014, the EBITDA Margin

decreased from 27.61% to -23.44%, a decline of 184.9%. Zynga experienced a major decline from 2010 to

2011 of 27.61% to -27.21%, a decrease of 198.55% as a result.

Operating Profit Margin (OPM) decreased from 21% in 2010 to -35.45% in 2014, a change of -268.8%.

Additional costs resulting from these acquisitions included an increase in Operating Expenses from $295.5

PROFITABILITY: 2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31

Return on assets 13.21% -22.28% -8.23% -1.52% -9.76% Return on equity

-43.22% -11.72% -2.00% -11.97%

Operating profit margin (EBIT Margin) 21.00% -35.58% -14.28% -7.52% -35.45% Net profit margin 15.16% -35.46% -16.35% -4.23% -32.72% Price/Sales

$6.43 $1.53 $3.34 $2.96

EBITDA Margin 27.61% -27.21% -3.24% 7.26% -23.44%


7

Revenue Mix (10K Balance Sheet)

Free Cash

Flow (10K Balance Sheet)

Altman’s Z-

Score (10K Balance Sheet)

million in 2010 to $1,215.7 million in 2011, or an increase of 310.85%. Furthermore, COGS increased from

$176.1 million in 2010 to $330 million in 2011, or an increase of 87.39%. OPM rose by 78.86% from 2011

to 2013 due to the benefits of accelerated depreciation and amortization. However, 2014’s lack of

depreciation and amortization brought OPM back down to -35.45%, a decrease of 371.4% from 2013’s

7.52%.

Additionally, Net Profit Margin (NPM) mirrors the changes of OPM due to the lack of interest expenses and

taxes. From 2010 to 2014, Zynga experiences a decrease from 15.16% to -32.72%, or a change of -315.83%.

Zynga’s Price to Sales (P/S) was $6.43 in 2011 after going public in 2011 Q3. This dropped significantly to

$1.53 in 2012, or a decrease of 76.2%. In 2013, the news of acquiring NaturalMotion increased investors’

confidence in Zynga’s earnings, subsequently increasing the P/S to $3.34, an increase of 118.3%. As

expected revenues in 2014 did not materialize, investor sentiment declined as reflected by the decreasing P/S

to $2.96, a decrease of 11.38%. Zynga’s 2015 release of the new mobile game “Dawn of Titans”, a product

of the NaturalMotion acquisition, increased P/S again to $3.54, or an increase of 19.59%. This rise in P/S

reflects a positive outlook on future cash flows to Zynga from this new release.

IGR / SGR: 2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31

Retention Ratio 100.0% 100.0% 100.0% 100.0% 100.0%

Internal Growth Rate (IGR) 8.86% -13.84% -7.52% -1.60% -8.77%

Sustainable Growth Rate (SGR) 23.13% -18.77% -10.29% -1.93% -10.65%

IGR and SGR are consistently negatively from 2011 forward. The IGR of 8.86% in 2010 fell to -8.77% in

2014, a decrease of 198.8%. Furthermore, the SGR fell from 23.13% in 2010 to -10.65% in 2014, or a

decrease of 146.04%. This is due to Zynga’s negative net income and retained earnings. Therefore the

company needs continual external financing to fund any infrastructure growth or make acquisitions.

Other Ratios (millions): 2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31

Net working capital 386 1,355 975 965 714 ROIC 23.20% -29.93% -18.76% -6.80% -34.28%

WACC

15.6%

Net working capital (NWC) increased greatly from $386 million in 2010 to $1,355 in 2011, or an increase of

251%. Overall, the company experienced a CAGR from 2010 to 2014 of 16.7%. However, Zynga

experiences a significant drop from 2011 of $1,355 million to $714 million in 2014, or a decrease of 47.3%.

Although there is a negative trend in NWC, there’s still plenty of liquidity on hand to pay its current

liabilities.

Return on Invested Capital (ROIC) while positive with 23.20% in 2010, trends negatively from 2011 with -

29.93% going forward to -34.28% in 2014, or a change of -14.5%. Zygna’s current WACC is 15.6% (100%

equity financed) giving a current ROIC-WACC spread of -18.68%. This means that Zynga is not earning

returns sufficient to cover their cost of capital and is eroding the company’s value. All this represents

Zynga’s need to innovate and create new sustainable sources of revenue while seeking an optimal capital

structure.

Free Cash Flow to the Firm

Free cash flow to the firm has significantly declined by 105.1% from 269.6 in FY 2010 to -13.7 in FY 2014.

This suggests that ZNGA had experienced several years where operating expenses and capital expenses

significantly increased while the firm’s net working capital had decreased leading to a negative free cash

flow. This suggests that the firm needs to increase cash flow in order to create positive, earnings, buyback

stock, and make future acquisitions. Zynga needs to optimize their operations in order to have an immediate

impact on their FCFF.

Altman’s Z-Score

Zynga’s Altman Z-Score rose significantly to 5.49 in 2011 due to the company’s IPO. In 2012, the Z-Score declined to 1.89, or a change of

-65.57% due to expenditures for investments in tangible and intangible assets as it put the capital the company raised to use. The Z-score

then takes a sharp upward turn again in 2013 to 4.94, or an increase 161.38% as the company realized profits from its earlier investments

and accelerated its depreciation and amortization of assets. The score dove again in 2014 due to capital expenditures related to the

acquisition of Natural Motion at a cost of $527 million bringing the score down to 2.82, or a decrease of 42.91% by the close of FY 2014.


8

Investment Summary:

Competetive Strategy

Grow and Sustain Games

Zynga plans to grow and sustain their current games by bringing existing games from the internet based platform to the mobile platform.

The mobile platform accounts for 60% of Zynga’s revenue currently. As users spend more time playing games on their mobile device, they

can enjoy Zynga’s games at their leisure via internet, without the attention and time constraints of traditional gaming consoles. Zynga has

defined their three “franchises” as Ville, Casino, and Word Play. Zynga will reinvest in games that effectively capture users in these target

segments. Zynga recently acquired NaturalMotion to position themselves as the leader in the Racing and Role Playing categories (49% of

the online gaming market) and have plans to further develop other gaming segments.

Creation of New Games

Zynga plans to develop most of their new games for the mobile platform before coding them for their legacy internet based platforms. The

strategy for content creation is to create games that reach a global audience. To accomplish this they will focus on producing games that are

attractive to a wide range of personalities and cultures. Zynga announced that they would produce 6 to 10 games in the coming year. New

games will be created with new technologies from acquisitions such as NaturalMotion and other proprietary software development

technologies and IP.

Efficiency of Operations

Zynga is committed to long term, horizons, healthier margins, and positive free cash flows. Zynga would like to grow bookings and

EBITDA while driving the audience of their games to the upcoming new releases in the pipeline. To accomplish this, Zynga plans to

reduce overhead with layoffs, reducing their employee count by 15% or just over 300 positions. Zynga has removed and redeployed

gaming development teams in order to engage in other product opportunities. This translates to taking the best performers from their

development teams and reorganizing them to be more synergistic. Zynga reorganized their data center by reducing their server count by

almost 50%. This will reduce costs associated with the servers such as power, cooling, maintenance, and equipment overhead. Lastly,

infrastructure support teams will be reduced and reorganized for functionality optimization.

Competetive Advantages

Growth and Sustainability of Existing Titles

Zynga is currently the dominant social gaming software content producer. There are several competitive advantages Zynga currently

enjoys:

I. Superior capital holdings

High liquidity and $1.1b in cash and marketable securities, with no LTD on its books. This Cash surplus accounts

for the bulk of the company’s value.

II. Marketing advantages

Zynga has the largest gaming base of any other mobile software company. Part of Zynga’s draw is the free to play

revenue model that allows for anyone to try out the game with a zero level commitment.

Zynga has proprietary IP and strategic acquisitions that are second to none in its segment. This allows for the best

effects, graphic, sound, and ease of play for the consumer who is already aware and active on Zynga’s platforms.

Competitors often have to spend as much as 50% of their budgets on marketing and advertising whereas Zynga is

already flush with popularity and exposure.

III. Ability to improve upon popular games

Zynga released FarmVille, the flagship software of its Ville line of products, as a competitor to the already popular

Farmtown by Codebell, LLC. FarmVille exploited modifications that users of Farmtown wanted to see.

Zynga’s top notch programmers and proprietary IP allow the company to produce higher quality products at much

faster rate than the competition, which attracts new users away from previously popular titles. (*based on data from www.Trefis.com)


9

Zynga

Historical Share

Price (10K Balance Sheet)

Valuation:

Voltron Capital Investments (VCI) has arrived at a target price of $3.10 per share based upon Price/Sales and

EV/Sales valuations weighted at 40% and 60% respectively due to Zynga’s immense liquidity. VCI could

not perform an EV/EBITDA multiple valuation due to a lack of positive EBITDA values. Consequently, a

DCF valuation is also not applicable due to a lack of positive free cash flows, net income, and retained

earnings. Therefore, VCI believes a multiple valuation of Price/Sales and EV/Sales to be the most accurate

measurements of the stocks true values in the market place.

Zynga is currently undervalued by 14.8% at a current share price of $2.70. This is due to new games coming through the pipeline in 2015

(i.e. Dawn of the Titans) and solidified strategic partnerships with several major sports leagues (NFL, PGA, FIFA). Zynga is also beginning

to focus on operational efficiency which should contribute to the future profitability of the stock.

A focus on optimization of processes, implementation of best practices, and maximization of employee efficiency through optimal

workloads spread across fewer positions promises to streamline Zynga’s operations. The share price of the stock has been rising from

March 13, 2015 to March 20, 2015 at a rate of between 1-2% per day consistently, showing the investor anticipation for user adoption of

the new Zynga flagship game, “Dawn of the Titans” (RPG), through the acquisition of NaturalMotion in 2014.

Due to Zynga’s recent major acquisitions of proprietary IP and other intangible assets, it is now poised to generate excess revenues,

innovative new titles, and create strong positive free cash flows. Zynga has the 2nd largest market share of social network gaming

development with 5.4% market share, superseded only by tech giant Electronic Arts (6.6%). With 82.8% of the market dominated by small,

one-off software companies, the opportunity for expanding Zynga’s market share within the industry shows tremendous upside. Projected

annual growth through 2019 is expected to be 11.7% YoY, according to Ibisworld.com, reaffirming the upside to the social network game

development industry.

Investment Risks:

Games may not become as popular as expected, further increasing Zynga’s asset base, sunk costs, and overhead but not translating into

sales.

Partnerships with FIFA, NFL, and PGA – the costs of licensing may overshadow the returns.

The games may be faulty and not developed fully due a need for hastened release.

Reduced market visibility due to an increase in substitutes/alternatives.

Delayed timing on the offering of their new games due to developmental issues or red tape from licensing agreements.

Nintendo’s new partnership with developer DeNA and their new product releases and innovations may erode Zynga’s customer base.

Facebook’s is a legacy platform and was responsible for Zynga’s initial success but is becoming less of a contributing factor to Zynga’s

overall revenue model. Separation from Facebook due to disagreements may hurt Zynga’s overall public exposures in the short term.

The new “real-money” gambling model may be deemed illegal domestically.

Current high revenue producing titles may decline in popularity which could drastically reduce income.

Slow global adoption of social networking platforms and their related applications may hamper Zynga’s performance and slow revenue

growth.

Multiple Valuation 2011 2012 2013 2014 2015 Sales Growth Rate

Price per share (Yahoo) 9.41 2.36 3.8 2.66 2.7

1.08%

Price / Sales Valuation

(ZYNGA)

Price $2.93

Weight 40%

Enterprise Value / Sales

(ZYNGA)

Price $3.20

Weight 60%

Target Price $3.10


10

APPENDIX Income Statement in millions

Source: Company Documents, Student Estimates

Zynga Inc (ZNGA US) - Standardized

In Millions of USD except Per Share FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Est FY 2016 Est

12 Months Ending 2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31 2016-12-31

Revenue 597.5 1,140.1 1,281.3 873.3 690.4 697.8 775.3

- Cost of Revenue 176.1 330.0 352.2 248.4 213.6

Gross Profit 421.4 810.1 929.1 624.9 476.8 499.2 553.2

+ Other Operating Revenue 0.0 0.0 0.0 0.0 0.0

- Operating Expenses 295.9 1,215.7 1,112.1 690.5 721.6

EBITDA 165.0 -310.2 -41.5 63.4 -161.8 9.4 58.1

Depreciation and Amortization 39.5 95.4 141.5 129.0 82.9

Operating Income (EBIT) 125.5 -405.6 -183.0 -65.6 -244.7 -93.3 25.3

- Interest Expense -- -- -- -- --

- Foreign Exchange Losses (Gains) 0.0 0.0 0.0 0.0 0.0

- Net Non-Operating Losses (Gains) -1.6 0.5 -23.4 -0.8 -11.5

Pretax Income (EBT) 127.1 -406.1 -159.6 -64.9 -233.2 -79.4 -24.5

Tax Rate 28.7% 0% 0% 0% 0%

- Income Tax Expense 36.5 -1.8 49.9 -27.9 -7.3

Income Before XO Items 90.6 -404.3 -209.4 -37.0 -225.9 -33.7 16.7

- Extraordinary Loss Net of Tax 0.0 0.0 0.0 0.0 0.0

- Minority Interests 0.0 0.0 0.0 0.0 0.0

Net Income 90.6 -404.3 -209.4 -37.0 -225.9 -176.7 -115.2

- Total Cash Preferred Dividends 0.0 0.0 0.0 0.0 0.0

- Other Adjustments 62.7 0.0 0.0 0.0 0.0

Net Inc Avail to Common Shareholders 27.9 -404.3 -209.4 -37.0 -225.9

Abnormal Losses (Gains) 39.3 -2.1 86.5 55.8 68.7

Tax Effect on Abnormal Items -13.8 0.8 -30.3 -4.9 -4.9

Normalized Income 53.5 -405.7 -153.2 14.0 -162.2

Basic EPS Before Abnormal Items 0.12 -1.41 -0.21 0.02 -0.19

Basic EPS Before XO Items 0.06 -1.40 -0.28 -0.05 -0.26 -0.18 -0.12

Basic EPS 0.06 -1.40 -0.28 -0.05 -0.26 -0.18 -0.12

Basic Weighted Avg Shares 447.8 288.6 741.2 799.8 874.5

Diluted EPS Before Abnormal Items 0.09 -1.41 -0.21 0.01 -0.19 -0.04 0.00

Diluted EPS Before XO Items 0.06 -1.40 -0.28 -0.05 -0.26

Diluted EPS 0.06 -1.40 -0.28 -0.05 -0.26

Diluted Weighted Avg Shares 658.5 288.6 741.2 799.8 874.5


11

Balance Sheet in millions



In Millions of USD except Per Share FY 2010 FY 2011 FY 2012 FY 2013 FY 2014

12 Months Ending 2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31

Assets

+ Cash & Near Cash Items 187.8 1,582.3 385.9 465.5 131.3

+ Short-Term Investments 550.3 225.2 898.8 660.0 785.2

+ Accounts & Notes Receivable 80.0 135.6 106.3 65.7 89.6

+ Inventories 0.0 0.0 0.0 0.0 0.0

+ Other Current Assets 88.2 80.8 93.3 50.2 76.8

Total Current Assets 906.2 2,023.9 1,484.4 1,241.4 1,082.9

+ LT Investments & LT Receivables 0.0 110.1 367.5 416.5 231.4

+ Net Fixed Assets 75.0 246.7 466.1 348.8 297.9

+ Gross Fixed Assets 114.5 346.0 637.2 557.4 0.0

- Accumulated Depreciation 39.5 99.3 171.1 208.6 0.0

+ Other Long-Term Assets 131.4 135.9 258.3 272.4 736.6

Total Long-Term Assets 206.4 492.7 1,092.0 1,037.7 1,265.9

Total Assets 1,112.6 2,516.6 2,576.3 2,279.1 2,348.8

Liabilities & Shareholders' Equity

+ Accounts Payable 33.4 44.0 23.3 21.0 15.0

+ Short-Term Borrowings 0.0 0.0 0.0 0.0 0.0

+ Other Short-Term Liabilities 487.2 624.7 485.8 255.5 354.1

Total Current Liabilities 520.7 668.7 509.1 276.5 369.0

+ Long-Term Borrowings 0.0 0.0 100.0 0.0 0.0

+ Other Long-Term Liabilities 109.7 98.4 141.7 125.3 84.1

Total Long-Term Liabilities 109.7 98.4 241.7 125.3 84.1

Total Liabilities 630.4 767.1 750.8 401.8 453.1

+ Total Preferred Equity 361.0 0.0 0.0 0.0 0.0

+ Minority Interest 0.0 0.0 0.0 0.0 0.0

+ Share Capital & APIC 112.4 2,426.2 2,725.6 2,823.7 3,097.0

+ Retained Earnings & Other Equity 8.9 -676.6 -900.1 -946.5 -1,201.3

Total Equity 482.2 1,749.5 1,825.5 1,877.3 1,895.7

Total Liabilities & Equity 1,112.6 2,516.6 2,576.3 2,279.1 2,348.8


12

Statement of Cash Flows in millions



In Millions of USD except Per Share FY 2010 FY 2011 FY 2012 FY 2013 FY 2014

12 Months Ending 2010-12-31 2011-12-31 2012-12-31

2013-12-

31 2014-12-31

Cash From Operating Activities

+ Net Income 90.6 -404.3 -209.4 -37.0 -225.9

+ Depreciation & Amortization 39.5 95.4 141.5 129.0 82.9

+ Other Non-Cash Adjustments -20.2 620.7 331.5 101.6 126.7

+ Changes in Non-Cash Capital 216.5 77.4 -67.8 -165.0 11.8

Cash From Operations 326.4 389.2 195.8 28.7 -4.5

Cash From Investing Activities

+ Disposal of Fixed Assets 0.0 0.0 0.0 3.1 5.1

+ Capital Expenditures -56.8 -238.1 -98.1 -7.8 -9.2

+ Increase in Investments 0.0 0.0 0.0 0.0 0.0

+ Decrease in Investments 0.0 0.0 0.0 0.0 0.0

+ Other Investing Activities -560.6 174.6 -1,398.9 152.2 -340.0

Cash From Investing Activities -617.4 -63.5 -1,496.9 147.5 -344.2

Cash from Financing Activities

+ Dividends Paid 0.0 0.0 0.0 0.0 0.0

+ Change in Short-Term Borrowings 0.0 0.0 0.0 0.0 0.0

+ Increase in Long-Term Borrowings 0.0 0.0 0.0 0.0 0.0

+ Decrease In Long-Term Borrowings 0.0 0.0 0.0 -100.0 0.0

+ Increase in Capital Stocks 352.9 1,435.8 43.1 7.0 16.3

+ Decrease in Capital Stocks -1.5 -283.8 -11.8 -9.3 0.0

+ Other Financing Activities 0.1 -83.3 73.4 5.7 -1.9

Cash from Financing Activities 351.5 1,068.8 104.8 -96.6 14.5

Net Changes in Cash 60.5 1,394.5 -1,196.4 79.6 -334.2

Consolidated Statements of Cash

Flows Data (thousands): FY 2010 FY 2011 FY 2012 FY 2013 FY 2014

Acquisition of property and equipment 56,839.0 -238,091.0 -98,054.0 -7,813.0 -9,201.0

Depreciation and amortization 39,481.0 95,414.0 141,479.0 129,047.0 82,894.0

Cash flows provided by (used in)

operating activities 326,412.0 389,172.0 195,767.0 28,674.0 -4,511.0


investing activities -617,438.0 -63,455.0 -

1,496,934.0 147,476.0 -344,159.0


financing activities 351,437.0 1,068,844.0 104,818.0 -95,818.0 15,119.0


13

For the Year Ended (users and payers in millions) in millions


For the Year Ended (users and payers in millions)

2010

average

2011

average

2012

average

2013

average

2014

average

Average DAUs 56.0 57.3 63.3 37.0 27.0 Average MAUs 217.0 232.8 301.8 171.3 118.3 Average MUUs(1) (Monthly Unique Users) 116.0 150.5 179.5 112.5 80.8 Average MUPs(1) 2,734.5 3.4 1.8 1.4 ABPU $ 0.04 $ 0.06 $ 0.05 $ 0.05 $ 0.07 Internet Media Average Revenue per Unit $ 0.04 $ 0.06 $ 0.05 $ 0.05 -- Advertising Revenue 22.8 74.5 137.0 113.7 152.8

Cost of Advertising Revenue 83.4 102.6 102.2 60.6 --

10K Stock Price in millions


Free Cash Flow in millions


Free Cash Flow 2010 2011 2012 2013 2014

2015

Estimate

2016

Estimate

Operating cash flow 469.5 382.8 (422.9) 14.3 (497.1) 31.5 96.2

Change in NWC 398 970 (380) (10) (251)

CAPEX (56.8) (238.1) (98.1) (7.8) (9.2) (20.2) (26.1)

Change in CAPEX (18.0) (181.3) 140.0 90.2 (1.4) (11.0) (5.9)

Free Cash Flow 269.6 151.1 97.7 20.9 (13.7) 11.3 70.1

10K Stock Price HIGH LOW

2011 4Q $ 11.50 $ 8.75 2012 1Q $ 15.91 $ 7.97 2012 2Q $ 13.15 $ 4.78 2012 3Q $ 5.61 $ 2.66 2012 4Q $ 2.90 $ 2.09 2013 1Q $ 4.03 $ 2.34 2013 2Q $ 3.63 $ 2.50 2013 3Q $ 3.90 $ 2.72 2013 4Q $ 4.55 $ 3.32 2014 1Q $ 5.89 $ 3.31 2014 2Q $ 4.66 $ 2.73 2014 3Q $ 3.28 $ 2.70 2014 4Q $ 2.92 $ 2.20


14

Porter’s Five

Forces (www.Forbes.com)

Porter’s Five Forces in millions


Porter’s Five Forces:

Competitive Rivalry – Shifting focus to mobile platforms (60%) will increase competition within the

industry.

The brisk evolution of gaming technology minimizes the window on which Zynga may capitalize their

efforts when putting forth new products/games.

The highly competitive nature of the Multi-media and graphic software forces companies to capture the

maximum amount of time and money spent by their users. Competition focuses on content, experience,

popularity, branding, and ease of use.

Zynga contends with a multitude of other forms of entertainment that compete for user’s time and attention.

Bargaining Power Of Buyers - A growing online gaming community coupled with options such as gaming consoles, desktops, mobile

platforms, and other forms of entertainment increases buyer power.

Buyers have a plethora of gaming options to choose from including platforms such as Xbox, PlayStation, computer games, apps and

mobile games.

Comparing 2012 to 2014, Zynga’s Monthly Average Users (MAU) decreased from 301.75 million to 118.25 million, a loss of 183.5

million users or a change of -60.81%. This demonstrates user’s desire for other products.

According the WSJ, only 1.9% of players actually pay to play Zynga’s games. Threat Of New Entrants - Zynga must be cautious due to low barriers to entry and the proliferation of competition. Low barriers to entry for virtual gaming guarantees a large number of competitors in the market.

Due to low costs of development and new trends/fads, increasing numbers of game developers are appearing in the market.

In contrast, the high cost of information dissemination, reaching new gamers, and the ability to distribute on platforms such as Apple’s

Appstore and Google Play does create some difficulty in entering the market.

Nintendo recently partnered with DeNA to create new games for smartphones in 2015. This demonstrates a high threat of new

entrants.

Bargaining Power Of Suppliers - Due to strategic partnerships with companies such as Apple and Google coupled with the

Facebook platform dissemination strategy.

Zynga divides its content over several platforms such as Facebook, Android, and Apple. The company relies on most if these platforms

for their revenues.

In 2014, Facebook made 24.9% of its revenues from online gaming of which Zynga is only a small portion.

Facebook is the primary platform for Zynga’s larger revenue producing games including FarmVille, Words With Friends, Zynga Poker,

Hit It Rich! Slots, and CSR Racing. These Social Network games for public use disseminated through social platforms places Zynga at a

disadvantage pertaining to service terms, fees, and conditions.

Zynga’s decision to separate from Facebooks new platform base for 10 of its existing titles may put the company at increased financial

risk from decreased revenues. However, Zynga may plan to discontinue these current titles in favor of new titles to be released this year.

Apple responded to Facebook’s platform change by migrating its policy to a 64-bit data standard in which Zynga must comply or be

left out.

Threat Of Substitute Products - The proliferation of alternative entertainment in the form of apps, consoles, etc. could decrease

users free time spent on Zynga games.

The value of the worldwide mobile gaming market is projected to increase from $3.5 billion in 2011 to $11.4 billion in 2017, an

increase of $7.9 billion or an increase of 225.71% according to Statista.com.

The increasing demand of alternative entertainment applications, social networks, and online sites will influence the flexible spending

and time allocated towards gaming platforms.

Online content developers such as Netflix, new TV applications from Yahoo, Facebook, and YouTube, and traditional physical

activities.


15

Disclosures: Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this company.

The author(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that might bias the content

or publication of this report. [The conflict of interest is…]

Receipt of compensation:

Compensation of the author(s) of this report is not based on investment banking revenue.

Position as a officer or director:

The author(s), or a member of their household, does [not] serves as an officer, director or advisory board member of the subject company.

Market making:

The author(s) does [not] act as a market maker in the subject company’s securities.

Ratings guide:

Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15% or greater

over the next twelve month period, and recommends that investors take a position above the security’s weight in the S&P 500, or any other relevant index.

A SELL rating is given when the security is expected to deliver negative returns over the next twelve months, while a HOLD rating implies flat returns over

the next twelve months.

Investment Research Challenge and Global Investment Research Challenge Acknowledgement:

[Society Name] Investment Research Challenge as part of the CFA Institute Global Investment Research Challenge is based on the Investment Research

Challenge originally developed by the New York Society of Security Analysts.

Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but

the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be

used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a

solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with [Society

Name], CFA Institute or the Global Investment Research Challenge with regard to this company’s stock.