Acquisitions have become a proven growth strategy for Facebook Inc. (FB), which recently acquired mobile app maker Onavo. This Israel-based start-up has been acquired for its expertise in data compression and mobile analytics, which would eventually help Facebook to expand its reach in developing economies.
This acquisition is expected to benefit Facebook in the long run. It has practically reached a point of saturation in the U.S. and Canadian markets and is nearing similar levels in Europe. Therefore, the company is looking for new areas of growth.
Facebook’s recently launched the internet.org project in association with Qualcomm (QCOM) and other technology companies. It is aimed to connect nearly 5 billion people who do not have access to the Internet. The acquisition of Onavo's data compression technology will therefore be a step in the right direction..
Acquisitions have played a pivotal part in generating revenues for Facebook over the last couple of years. The acquisitions of Snaptu, Instagram, Face.com, Lightbox, Glancee, Threadsy and Parse expanded its content and applications for the desktop as well as mobile phone. Recently, the company acquired the assets and technical team of UK based software verification company, Monoidics.
Facebook had also acquired the Atlas Advertiser Suite from Microsoft to strengthen its position in the online ad market. We believe that the company will continue to pursue strategic acquisitions in order to strengthen its product portfolio as well as customer base, going ahead.
Although Facebook is growing nicely through acquisitions, the partial government shutdown in the U.S. has had a detrimental effect on the stock. Other social media stocks like LinkedIn Corp. (LNKD) and Yelp Inc. (YELP) have not been spared either.
The social media sector is feeling the heat, although it had sailed through economic uncertainties in the U.S. in the past. The sector has been immune to a considerable extent to political problems and the worsening debt situation in the country. However, economic uncertainties have been continuing for a while now and social media, which is funded by advertising budgets, is now seeing the impact as well. We believe that though new acquisitions add value to the company, such acquisitions take time to reap benefits.
Facebook has a Zacks Rank #2 (Buy).