How to Play the Yahoo! Inc. (YHOO) Acquisition Rumors: Zynga Inc (ZNGA), OpenTable Inc (OPEN)

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Far too often retail investors hurry and buy a stock when whispers of an acquisition occur, but then return losses when the acquisition never materializes or when the buyout price is less than investors expect (i.e., Clearwire). Now, investors are looking to another high-profile company that is in the market to acquire, but the question remains, who will Yahoo! Inc. (NASDAQ:YHOO) acquire and should investors chase the speculation?

Yahoo! Inc. (NASDAQ:YHOO)

What’s Going On?

Back on March 7, a Yahoo executive stated that the company is working on two “significant” acquisitions. Almost immediately shares of OpenTable Inc (NASDAQ:OPEN) and Yelp Inc (NYSE:YELP) responded to the rumors and traded higher. While mobile advertising company Millennial Media, Inc. (NYSE:MM) did not trade higher, it was also at the center of speculation. Then, on Monday, shares of Zynga Inc (NASDAQ:ZNGA) popped higher by 10% when Wunderlich’s Blake Harper said that he views Zynga Inc (NASDAQ:ZNGA) as a potential buyout target.

Do you Want to Play Roulette?

Each of the four companies make sense as a potential acquisition for Yahoo! Zynga Inc (NASDAQ:ZNGA) could strengthen the company’s social media exposure, and could be acquired relatively cheap compared to the valuations of some social media companies.

Millennial Media offers mobile advertising, and with mobile growing so rapidly, such an acquisition could be beneficial for a company that relies on revenue from advertising. Then, there are the food review sites Yelp and OpenTable Inc (NASDAQ:OPEN), both of which would be a counter to Google Inc (NASDAQ:GOOG)’s recent acquisition of Zagat. It was reported that back in 2009 Yahoo actually made a $750 million offer to acquire Yelp, and that Yahoo! Inc. (NASDAQ:YHOO) also pitched bankers of OpenTable as early as last year, therefore both seem possible.

Right now, we have four companies and two potential acquisitions. If you consider a 50% chance of investing in two of the four then your chances of returning a large pop are about equal to that of choosing red or black at a roulette table. The problem is that social media expands every day, and when you consider the number of promising public companies, your chances of successfully purchasing prior to an acquisition is more like choosing a number on a roulette table. Basically, it’s a risky business.

Hold on Just a Minute

Those who might feel compelled to invest in any of these four companies on the possibility of a Yahoo acquisition also need to consider the likelihood of Yahoo looking at other companies. Consider the fact that CEO Marissa Mayer was at Google for 13 years, most of her career, and held a number of top leadership positions. Most recently, prior to taking the CEO position at Yahoo, she was the Vice President of Local, Maps, & Location Services. Therefore, she was part of several big acquisitions, but strangely enough, only one of the larger acquisitions (over $100 million) was a public company. Click here to see notable Google acquisitions since 2005.

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