Well, there's no denying it's been a pretty rough few weeks for the ol' virtual portfolio. Since I made my first virtual trade, the value of Synacor (SYNC) has fallen from $3.52 a share down to $3.10 a share at close on Friday. (Fortunately, the price recovered a bit today to $3.28 a share, but the portfolio is still down almost $150 from the initial captial investment.) So, not a great result for the first few weeks of investing.
Interestingly, though I have tried, I have been unable to determine what precisely drove the rather precipitous drop in Synacor's value over the last few weeks. The only real news to come out of the company was announcement of a new office in Boston back at the end of May (see here); an announcement which initially seemed to cause the stock to spike 7% in single day of trading, and which seems to speak as much to the company's growth and solidity as its weakness. It may of course just be one of those feedback loops based on little or no information which are impossible to predict. Nevertheless, it is my hope that in the future I can find better resources for determining why people are buying or selling a stock.
An interesting potential opportunity came to my attention a few days ago, one that I'm sure may already knew about and some have already dived into. As of last Friday, June 28, Rupert Murdoch's octopus like global media empire (News Corp) was spun off into two companies. The lion's share of the business remained, comprised primarily of the entertainment properties: things like 20th Century Fox, the Fox broadcast networks, Fox News, Fox Sports (excepting Australia) and so on. However, the publishing arm of the business -- including the company's newspapers like the Wall Street Journal and the The Times of London along with Harper Collins publishing and several other properties -- was spun off into a smaller independent company. Confusingly, the smaller spin-off company took on the name News Corp and stock ticker symbols (NWSA and NWSV) while the remaining company switched its name to Fox and its ticker symbols to FOXA and FOXV.
Now, after reading Greenblatt, my ears naturally prick up at the sound of the word "spin-off". So when I read about this one, I was pretty excited. After all, the new spun-off company would include the franchises carrying the stigma of the News of the World hacking scandal, which might scare off investors and keep the price down. Unfortunately while this situation does have many of the details of a desirable spinoff, it also has some things going against it. First of all, while the spinoff did create a considerably smaller company (less than 1/7 the original size by market capitalization) the original company was so large that the new News Corp is still a Fortune 500 company! So the new News Corp is hardly outside the eye of institutional investors. In addition, the movement of capital back and forth over the last few years makes it very difficult to get a handle on the likely earnings of the new News Corp, even with the Pro Forma financial statements available in the separation's Form 10 filing.
To get a stab at a fair price for the new stock, I tried using price/sales and price/operating income and comparing it with other publishing companies. According to price/sales, the price is near the lower end, but well within a standard price for a publishing company; according to price/operating income, the price of new News Corp is actually a bit high. So, despite the baseline advantages of spin-offs, it seems that the price of the new News Corp is being held up by institutional scrutiny, and thus not necessarily a terrific opportunity as yet.
Nevertheless, I'll wait and see if selling pressure pushes down the price over the next week or two. If the price were to drop down around 10 or 11, then we might have a reasonable bargain on our hand. But I doubt that's going to happen. So for now, the portfolio will stay as it is.
