Palo Alto convertibles in focus, gain post-earnings; Zynga active as takeout approaches

By Abigail W. Adams

Portland, Me., May 20 – It was a relatively active day in the convertibles secondary space on another volatile day for equity markets.

While equity indexes launched the day strong, they crumbled as the session progressed with the S&P 500 index briefly entering bear market territory.

However, a surge of late-day buying pushed indexes off their lows and they closed the day mixed.

The Dow Jones industrial average closed Friday up 9 points, or 0.03%, and the S&P 500 index closed up 0.01%. However, the Nasdaq Composite index closed down 0.30% after trading down 3% in intraday activity and the Russell 2000 index closed down 0.17%.

There was $74 million on the tape about one hour into the session and $420 million in recorded volume about one hour before the market close.

Palo Alto Networks Inc.’s 0.375% convertible notes due 2025 again dominated activity in the secondary space with the notes gaining outright as stock surged post-earnings.

Zynga Inc.’s 0.25% convertible notes due 2024 again saw high-volume as the takeout of the note approaches with Take-Two Interactive Software Inc.’s acquisition of the social video game developer set for completion on May 24.

While activity in the name tempered as the session progressed, BlackLine Inc.’s 0% convertible notes due 2026 were active and on the rise early in the session after a surprise earnings beat.

Pinduoduo Inc.’s 0% convertible notes due 2025 also saw a round of early morning activity although with little movement in price after a surprise rate cut by China’s central bank.

Palo Alto in focus

Palo Alto’s 0.375% convertible notes due 2025 continued to dominate activity in the secondary space as equity surged after strong earnings.

The 0.375% notes gained almost 9 points outright with stock up almost 10% post-earnings.

The 0.375% notes were changing hands at 163.125 versus a stock price of $470.39 in the late afternoon.

The dollar-neutral expansion largely depended on the delta the notes were played on, but they were seen up a nominal 0.125 to 0.25 point on swap in the late afternoon.

There was $23.5 million in reported volume.

Palo Alto’s stock traded to a high of $492.97 and a low of $460.44 before closing the day at $478.68, an increase of 9.70%.

Stock held onto strong gains even as equity markets crumbled mid-session after strong earnings.

The cybersecurity company reported earnings of $1.79 per share versus analyst expectations for earnings of $1.68.

Revenue was $1.39 billion versus analyst expectations for revenue of $1.36 billion.

Zynga active

Zynga’s 0.25% convertible notes due 2024 were active with the notes on the verge of being taken out in Take Two’s acquisition of the company.

The 0.25% notes were down 1 point outright.

They were changing hands at 113.25 in the late afternoon.

There was $13 million in reported volume.

The notes have moved alongside Take Two’s stock price, which will determine the value of the notes in the takeover, a source previous said.

Take Two’s stock traded to a high of $121.82 and a low of $114.92 before closing the day at $116.12, a decrease of 3.04%.

Take-Two is set to complete its acquisition of Zynga on Monday with the company paying $3.50 in cash and $6.36 in Take-Two stock for each share of Zynga.

Zynga’s stock closed Friday at $8.18, a decrease of 2.04%.

BlackLine’s earnings

While activity in the name tempered as the session progressed, BlackLine’s 0% convertible notes due 2026 were on the rise alongside stock after a surprise earnings beat.

The 0% convertible notes rose 3 points outright with stock up more than 5% early in the session.

The notes were changing hands at 113.13 versus a stock price of $68.59 early in the session, according to a market source.

There was $5 million in reported volume.

BlackLine’s stock continued to climb as the session progressed.

Stock traded to a low of $66.94 and a high of $72.07 before closing the day at $72.07, an increase of 9.20%.

The software company’s stock held onto its strong gains as broader markets turned negative after reporting earnings per share of 1 cent versus analyst expectations for losses per share of 8 cents.

Revenue was $120.24 million versus analyst expectations for revenue of $119.61 million.

Pinduoduo on the tape

Pinduoduo’s 0% convertible notes due 2025 were also active early in the session although activity in the name also faded as the session progressed.

The 0% notes remained wrapped around 87 early in the session with the yield 9.379%.

There was also about $5 million in reported volume.

The Shanghai-based e-commerce company’s long-busted convertible notes are not equity-sensitive.

However, Pinduoduo’s American Depositary Shares traded to a low of $39.34 and a high of $44.05 before closing the day at $40.90, a decrease of 2.73%.

While Pinduoduo’s equity was dragged down with broader markets, they saw a strong open after China’s central bank made a surprise rate cut.

The rate cut was cited as partly responsible for the strong open of equity markets.

Mentioned in this article:

BlackLine Inc. Nasdaq: BL

Palo Alto Networks Inc. Nasdaq: PANW

Pinduoduo Inc. Nasdaq: PDD

Zynga Inc. Nasdaq: ZNGA

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