NEW YORK (TheStreet) -- While I dislike most low-priced cult stocks, I absolutely adore misunderstood stocks. When they experience weakness, the words "buy on the dip" become more than just a mindless tout.Consider Zynga ( ZNGA). On Tuesday -- and for the second time in recent weeks -- the stock sold off hard. This time investors unloaded shares after Zynga made several announcements at its "Unleashed" event. Zynga intends to make its games more social and accessible across devices and, maybe most importantly, away from the Facebook ( FB) platform that catalyzed its success. For a complete summary of what Zynga announced at "Unleashed," see this recap by TheStreet's Nathalie Pierrepont. Just like the one that took ZNGA below $5.00 earlier this month, this selloff is overdone. After hitting an all-time low of $4.78 on June 12, ZNGA rebounded to trade as high as $6.16 on the 25. That's about 29% worth of upside. I saw that coming and added to my position aggressively under $5.00 and a bit more just above that. My cost basis now stands at $5.57. The stock retreated all the way back to $5.77 at Tuesday's close. That's absurd. Because I took advantage of the earlier weakness, I will most likely just stand pat with what I've got. That said, this selloff could represent another buying opportunity. There's no doubt about it if it intensifies. And, if we see sub-$5 again, ZNGA, yet again, becomes a screaming buy. Many investors, and CNBC's Bill Griffith illustrates this, simply cannot wrap their heads around the type of business model companies like Zynga and CEOs like Mark Pincus employ. In a CNBC interview, Griffith railed Pincus about his company's stock price. Pincus, who comes off as a tad socially awkward, did a less-than-stellar job responding. But, at day's end, Pincus could have pulled Ph.D.-level rhetorical speaking skills from his back pocket and Griffith still would not have understood. I'll pull the great wordsmith Haruki Murakami from my back pocket and simply say, "If you can't understand it without an explanation, you can't understand it with an explanation".
Do you have a goal for when you can throttle back on expenses and become profitable?It's been 13 years and about 306% worth of stock price appreciation and that explanation still makes no sense to AMZN bears. So, it should come as no surprise when these same types of folks can't make sense of these lines from Mark Zuckerberg's recent letter to investors, included in the company's SEC filing:
Our strategy is very, very clear: We're focused on long-term returns for investors. And to throttle back on investment now would be shortsighted. When we have less opportunity that will probably happen. But as long as we have lots of opportunity, we're going to continue to invest commensurate with that opportunity in a very disciplined and methodical way, but in a long-term context. To do anything else, we believe, is irrational.
By focusing on our mission and building great services, we believe we will create the most value for our shareholders and partners over the long term -- and this in turn will enable us to keep attracting the best people and building more great services. We don't wake up in the morning with the primary goal of making money, but we understand that the best way to achieve our mission is to build a strong and valuable company.It also shouldn't befuddle you when this same type of investor can't seem to process what Pandora ( P) CFO Steve Cakebread told me in an interview from January of this year. I paraphrased Cakebread's thoughts over at Seeking Alpha:
Pandora is in rapid growth mode. And fast-growing, pioneering companies that are disrupting industries risk sacrificing long-term profitability and sustainability by not investing enough in the business early on just to achieve profits. While you cannot spend recklessly, you have got to spend. In other words, by not spending today to grow in the name of profitability, Pandora could very well not position itself properly for the long haul.Cakebread fits nicely at Pandora, given that the company's founder Tim Westergren often echoes the same type of statements we hear from fellow visionaries Bezos, Zuckerberg and Pincus.