Last week, was a relatively quiet one for technology companies, although Facebook (FB) did make a flash with its $19 billion acquisition of WhatsApp.
Facebook Buying WhatsApp
Facbook’s buying WhatsApp was not as much of a shock as was the deal value of $19 billion in cash and shares. The deal itself makes sense, since Facebook got to acquire a fast-growing platform of users and a talented team. It also eliminated potential competition and kept Google (GOOG) out.
But how the company plans to make money off the deal is unclear. It has agreed to the founders’ wishes of letting the platform run independently and ad-free in return for a subscription of $0.99 a year. So revenue growth at the moment is totally dependent on user growth. Hopefully it will raise the annual subscription fee after the business reaches critical mass (a billion users maybe?).
Google Extends Fiber to 34 Cities
Google currently offers its Fiber service (high-speed cable TV and Internet) at $120 a month in Kansas City, Austin, Texas, and Provo, Utah. The company has now announced that it is inviting nine other metropolitan areas to join the network. The authorities are required to provide some information to Google including maps of existing conduit, water, gas lines and electricity lines that would help it decide where to lay the fiber. Laying the lines is an elaborate process, but this is not expected to be a stumbling block.
Given the current size of the project, no one would assume that this could be a diversification of its revenue stream. But five years hence, the company will have spread further and learnt more about the business to put up some real competition for incumbent Internet Service Providers. So it’s a project with considerable prospects and Google has been treading very cautiously so as not to make any mistakes.
The other obvious advantage is the benefit to its existing business. Google gets to collect even more data (this time about the increased usage related to higher Internet speeds). It also gets to offer much faster and therefore more satisfactory streaming services, which could potentially increase its digital sales. So this looks like another smart move by Google.
Comcast/Time Warner Merger Is Not Just About Them
Comcast (CMCSA), the largest U.S. cable company is planning to absorb Time Warner Cable (TWC), the second largest player. Since this disturbs the competition in the market, the deal is under scrutiny. The only reason it may go through is the prospect of increasing competition. This is where Google’s Fiber initiative could actually be favorable for the two, since Google offers an alternative to these incumbents. Google’s cash and market cap are things in favor of the merger, while its fledgling efforts in the space are unfavorable.
However, the deal also impacts other Internet TV players, such as Netflix (NFLX) or Apple (AAPL) that have been in talks with Time Warner for the inclusion of their services on its platform. Netflix is also in talks with Comcast, but the talks have not advanced that much.
The problem is with respect to Comcast’s relatively new X1 set top box platform that streams movies and other programs from the cloud. Comcast has tremendous clout with content providers and is working to rapidly increase content on this device. It also has the potential to introduce social elements, such as recommendations or integration with Facebook and/or Twitter (TWTR).
If Comcast decides to go independently, Apple and Netflix could be shown the door. But it might also decide to integrate with either one, which would be a positive for them. So a lot remains in flux until the fate of the $45 billion deal is sealed.
|
Company |
Last Week |
Last 6 Months |
|
AAPL |
-3.50% |
+4.84% |
|
FB |
+2.40% |
+69.15% |
|
YHOO |
-2.38% |
+33.23% |
|
GOOG |
+0.80% |
+38.33% |
|
MSFT |
+1.21% |
+9.29% |
|
INTC |
-0.21% |
+8.82% |
|
CSCO |
-0.85% |
-7.25% |
Other stories you may have missed–
Apple Gains Share in China: IDC says Apple’s smartphone market share in China edged up from 6% to 7% in the fourth quarter of 2013 on the back of strong iPhone 5S sales. Apple remains the fifth largest player behind Samsung (19%), Lenovo (13%), and Chinese companies Yulong (11%) and Huawei (10%).
Apple/Tesla Merger Talks Boost Tesla Shares: Although a merger is highly unlikely given the completely different business models and the significantly lower margins at Tesla (TSLA), everyone expects Apple to be on the verge of a new announcement. Apple’s announcement is more likely to be product-related however (medical device/iWatch, etc). Any talks between Apple and Tesla officials are far more likely to be about integration of iOS into its vehicles or some other agreement fostering collaboration between the two. Tesla shares jumped regardless.
Google I/O Developer Conference This Week: Google will be hosting its annual developer conference on Jun 25 and 26 that will address issues such as maximization of revenue from mobile apps. Participants will be selected by lottery and the event will be streamed to those who can’t make it.
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