A Zynga Takeover: Facebook The Front-Runner But ...

Jul.30.12 | About: Zynga (ZNGA)

I recently wrote an article stating that Zynga (NASDAQ:ZNGA) took a shot across its bow when it revealed recent earnings. Although the company reported revenues up nearly 20% YOY and Bookings up double digit as well, the stock plummeted to around $3 a share. It was mentioned that because of a recent change in the way Facebook (NASDAQ:FB) shows the listing of its games and apps, it directly affected Zynga and not in a positive way.

I had suggested that because of the share price of the stock sinking like the H.M.S. Titantic and because Zynga games and apps are used on Facebook anyhow, it could become a prime target for a takeover. But besides the obvious choice, which other companies could benefit by buying out Zynga? I will list a few below.

In keeping with the tradition, similar to a previous article I wrote, all odds are for entertainment purposes only. Who will be the winning bidder?

Facebook: 1-1 odds Why not? As I mentioned in the last article, Facebook could make an offer of $4-5 a share and still make back their investment in less than a year. 700 million shares makes for a $3.5 billion investment IF the company does not work out a deal with CEO Pincus. He currently has "super shares" based on a deal worked out last year that grants him about 37% of the voting stock. Not to mention Zynga has about $1.6 billion in cash and also generated $330 million this past quarter even with the new Facebook "change" in philosophy. By putting the Zynga games back to their "Facebook friendly" status as were previously, an acquiring company like Facebook could dramatically increase that number as well. Remember, Farmville had 80 million users back in March, yet only 20 million this past month. Considering Farmville made up a whopping 29% of Zynga's revenue last quarter, getting those numbers back to where they were (and maybe beyond) would make a world of difference.

Google (NASDAQ:GOOG) 2-1: Another strong possibility, Google already invested over $100 Million into Zynga, and is still considering the Google games platform. It also has been suggested that Google could buy the company to stop Zynga from advertising on Facebook, though since Google is also an advertiser, that seems unlikely.

Apple (NASDAQ:AAPL) 5-1 odds: Let's not forget our juggernaut which has even more cash lying around! Also do not forget that Zynga games are prominent on our iPads as well as Facebook. Words with Friends, Hanging with Friends the list goes on and on. Not a bad investment for a company with cash to spend at a price that is right, although not sure if Apple wants to use the money on an acquisition. Though it would not be the first time I suggested Apple buy someone.

In closing at this time Zynga seems to be priced very low for what is currently on the table. $1.8 billion in cash is nothing to joke about, nor is the potential for a company that seems (for the most part) to produce widely popular games that can generate not only ads but also revenue. The down side to this is that it seems if no one does acquire Zynga, it may go the way of the Dodo. It just cannot seem to stay out of its own way and is too heavily reliant on Facebook at this time.

I would be interested in hearing all your thoughts on this, I believe Zynga is a prime candidate for a takeover due to the price and cash available, and I think Facebook is the primary player (at this point). Would love to hear alternative prospects as well.

Disclosure: I am long SIRI, DELL, HMY.

Additional disclosure: I may enter into positions in ZNGA and NFLX in the next 24-48 hours.