WhatsApp With Facebook's Stock? A Case Of If You Can't Beat'em, Buy'em
For all those naysayers out there who couldn't help but caterwaul over Facebook's demise before the ink was even dry on it IPO opening, May 19, 2012 -- including myself [see "How Many Dumb F*cks Rocked Facebook's IPO Like It's 1999?"] -- our subesquent rude awakening was the world's largest social network fooled a good many of us.
While opening at $32 a share and rebuffed by the investment community almost immediately, the stock plummeted into the teens on the Nasdaq Exchange within a few months, signaling a clarion call that the market was to experience another dot.com bust.
Yet comparing the FB ticker in February, 2013 at $25 and today at $70, the stock's almost tripled. So what's the impetus for this reversal and Zuckerberg's exponential success story- particularly at a time when the network is losing a good portion of it's teen demographic?
According to the social media data from GlobalWebIndex, as of the fourth quarter of 2013, FB's global share of active teen users continued to slide to 48.5% from 76% in the first quarter of last year.
While at first blush, it seems counter-intuitive that in losing that many potential consumers, Facebook's stock value should escalate? However, one has only to look at Facebook's most recent acquisition to understand the moving-parts in play here.
Never to be outbeat, Zuckerberg's been wise enough to keep a finger on the pulse of consumer preferences. In so doing, this past week he shelled out an astronomical $19 billion to acquire the mobile messaging app WhatsApp - an application that's attracted 450 million users to date [made up of mainly millennials]. To put this in perspective, this one purchase was 19-times what he spent on Instagram in 2012 - which was another move to recapture a younger audience.
On his Facebook page according to MediaPost.com, Zuckeberg was quick to justify his rationale, with a party-line boiler-plate statement: “I’m excited to announce that we’ve agreed to acquire WhatsApp and that their entire team will be joining us -- WhatsApp will complement our existing chat and messaging services [including Facebook Messenger] to provide new tools for our community.”
In actuality, Facebook's chess moves have fast become predictable. Like a virtual game of 'Whac-A-Mole," Zuckerberg attacks his competition by whacking them, before they can whack back - depriving them of their chance to continue to steal his market share. Will Oremis at Slate.com says Zuckerberg deals with his would-be usurpers by taking a "thunderous whack at (them), with a mallet made of stock certificates and $100 bills."
And to date, he's been fairly successful, except in the case of the text-messaging service Snapchat which rebuffed his $3 billion buy-out offer most recently -- which in retrospect might have not been such a great loss. [but that's another story: "Does Snapchat's Sexting Lead To Boom, Bubble Or Just Disposable Pornography?"]
Mobile strategy is key in boosting Facebook's revenue and profit picture. Facebook’s $1.8 billion in advertising sales, which accounted for 89% of total revenue, surged 76% in the fourth quarter -- up from 66% growth in the prior quarter. Mobile advertising, for the first time, accounted for more than half the company’s ad revenue in a quarter: at 53% -- nearly double the 23% it made up in the year-earlier period.
While there is no advertising platform currently in place on the existing chat and messaging service, WhatsApp is prime for that enhancement, and when it kicks in, Zuckerberg is prime to receive a healthy return on his investment. Maybe not this year, maybe not next, but down the road, that $19 billion is going to recouped, and then some.
Your thoughts, readers? Does the house that Zuck built have a sturdy enough foundation, or does it stand a chance of being wacked down itself, in the foreseeable future?