Zynga Inc (NASDAQ:ZNGA) is one of three Internet-based companies that are rumored to be targets for acquisition by Yahoo! Inc. (NASDAQ:YHOO), but if you really look at the details, it just doesn’t make sense for the two to merge. Shares of Zynga jumped on Tuesday on the news of a possible acquisition by the search giant, but today they’re down 2 percent, perhaps because investors are starting to take a second look at what a deal between the two companies would mean.
One of the biggest problems is that both companies are in the midst of a turnaround. Zynga Inc (NASDAQ:ZNGA) is reeling with the loss of its privileged relationship with Facebook Inc (NASDAQ:FB). And as NASDAQ points out, the company just can’t seem to get a good thing going. AppData shows that numerous Zynga games that were once popular are losing players, but not many of them are gaining players.
And then there’s the hope that Zynga Inc (NASDAQ:ZNGA) will become a major player in the online gambling industry. There has been a recent rally in the company’s shares as online gambling legislation has made its way through the New Jersey legislature, going on to be finalized. But the major casinos in Atlantic City aren’t going to give way to a new player in the market easily. They could be a major threat to newcomers in the New Jersey gambling industry, just as Zynga would be.
Zynga Inc (NASDAQ:ZNGA)’s CEO has also made some interesting comments about revenue and even shown by his actions that he will continue to do what he likes, even if his company is broke, laying off employees and shutting down some of its games. Mark Pincus has said in the past that he does “every horrible thing in the book just to get revenues.” He also bought a new home while his company is struggling.
The Wall Street Journal looked at the possibility of Yahoo! Inc. (NASDAQ:YHOO) acquiring Zynga from the perspective of the search giant. The site’s blog points out that Yahoo! CEO Marissa Mayer is focused right now on things that fall into the category of “daily habits,” and gaming doesn’t necessarily do that for most people.
If Yahoo! Inc. (NASDAQ:YHOO) were to acquire Zynga Inc (NASDAQ:ZNGA) in its current state, it would be like getting into a whole new business, which the company probably isn’t ready to do. It’s trying to reinvent itself as a stronger competitor for Google Inc (NASDAQ:GOOG), and it can’t do that if it gets sidetracked with businesses it doesn’t currently hold a substantial presence in.
Yelp Inc (NYSE:YELP) and OpenTable Inc (NASDAQ:OPEN) are the other two companies that are rumored to be targeted for acquisition by Yahoo! Inc. (NASDAQ:YHOO). If you ask me, those two companies might make more sense for the search company, but even those might be a bit of a stretch at this point.