Facebook’s Bet in the Future by Acquisitions

Facebook’s recently acquisition with Whatsapp and Oculus VR and experts expect growth within the first quarter.

By: Brandon Peng

Date: April 9^th, 2014

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Facebook seems to be winning bets in the market while holding on to Zuckerberg’s philosophy. After acquisitions of Whatsapp and Oculus VR, stock prices up by 7.25% in April 9^th, 2014, while waiting for its 2014 first quarter report.

Facebook acquired Oculus VR at March 25^th 2014, a virtual reality Technology Company that was found recently in 2012 by Palmer Luckey, for about $2 billion. Before, Facebook also acquired Whatsapp in February 19^th, 2014, a popular mobile communication app in Europe, India, and Latin America with former CEO Jan Koum for about $16 billion. Analysts at Wall Street were shaky about Facebook’s growth with its investment into acquisitions.

To people that are questioning its decision, Mark Zuckerberg, Facebook’s famous CEO, shows to hold on to its strategy announced in his 10-K annual earning report: “We intend to increase the size of our network by continuing our marketing and user acquisition efforts, enhancing our products including mobile applications, and making Facebook more easily accessible to people throughout the world.”

Backing Zuckerberg’s philosophy, his company’s investment to morph Facebook into a mobile business to extend communication to everybody shows results. According to its latest January earning report, its revenue skyrocketed by 63% over the past year. Gross revenue has been increasing to $2.58 billion compared to its pervious third quarter of $2 billion, and an astonish increase from $1.58 billion from four quarters ago. Net income has also been increasing with no staggering to this quarter’s $523 million from third quarter’s $425 million and a feeble $64 million a year ago. Most of its generated revenue comes from advertisement revenue; as much as fourth quarter mobile ad revenue of $1.25 billion to be nearly as large as the total ad revenue in last year’s fourth quarter earning report.

Furthering the optimism, David Ebersman, the chief financial officer of Facebook, shows an indication of revenue growth beyond his expectation of advertisement shown on mobile devices in January 2014 conference call: “…about mobile and desktop impressions, as you know, per user or per unit of time on the desktop, we show a higher number of ads, because there’s the right-hand column ads in addition to News Feed, but we’re extremely pleased with how well the News Feed ads continue to perform…”.

With the combination of users from Whatsapp’s and Facebook’s database, analysts expect advertisement revenue to increase even more with more expected viewership. But according to Zuckberg’s answer to Doug Anmuth’s question of relation between Whatsapp and Facebook’s advertisement during their WhatsApp conference call, a senior Vice President of JP Morgan and senior research analyst that covers the internet, Facebook would not show advertisements for revenue in Whatsapp: “I don’t personally think that ads are the right way of monetized messaging service”.

Without the use of advertisement revenue from the acquisition of Whatsapp, Facebook could still grow with the priority of growth rather than revenue, as indicated by Koum during the Whatsapp Conference Call.

While the balance sheet doesn’t absolutely reveal the influence of Facebook’s growth by Whatapps and Oculus, the current stock market could. With the acquisition of Facebook with Whatsapp, Facebook’s stock value has been increasing in value to $68.06. Then with Facebook’s recent acquisition with Oculus, the stock was valued at $64.89; it overall shows the increasing value since the closing price of their stock was $54.65 in the fourth quarter. The EPS, earning per share, has skyrockets to $0.59 since the $0.20 EPS announced during the fourth quarter. And the price per earnings ratio jumps from 88.14 to 105.78.

While extending to Oculus, Anmuth of JP Morgan commented of Facebook on March 26th: "Facebook believes virtual reality is the next major computing platform after mobile and if this is the case, we believe the Oculus acquisition will allow Facebook to shape and benefit from the evolution of virtual reality into mainstream communication and media."