Facebook (FB) is on an acquisition spree in 2014. After acquiring WhatsApp, Oculus Rift and Ascenta in back-to-back deals, the social network recently acquired Finnish company ProtoGeo Oy for an undisclosed amount.
ProtoGeo Oy is the developer of popular mobile app Moves, which have been downloaded more than 4 million times on Apple’s (AAPL) iPhone and devices based on Google’s Android operating system.
Moves use in-built sensors in smartphone devices to track user’s physical activities. The acquisition will help Facebook to enter the upcoming fitness and health monitoring technology market, which has recently witnessed products from companies such as Fitbit and Jawbone.
However, the most significant investment to date has been from Google (GOOGL) through its Android Wear project. The addition of Moves to Facebook’s App store will help it to compete with Google in the near future.
Facebook’s frantic pace of acquisitions and their long-term growth nature are major concerns for investors. Per Bloomberg, to date, the decade-old company has spent approximately $21.0 billion on 40 acquisitions. At the end of first quarter of 2014, Facebook had cash and cash equivalents of $12.63 billion.
In order to calm investors’ nerves, we believe that Facebook needs to maintain its ad revenue growth momentum, particularly in the mobile segment, over the next couple of years. The company reported strong first-quarter advertising revenue growth of 82.7% as contribution from mobile increased 6.0% sequentially to 59.0%.
However, this may become difficult as the company continues to face intensifying competition from Google, Yahoo! (YHOO) and Twitter (TWTR) in the ad market.
Nevertheless, Facebook has gained significant traction in its mobile ad business within a very short span of time. This combined with the massive user base and its ability to track personal details over time makes it a formidable force in the online ad market.
We believe that Instagram’s growing popularity will continue to boost Facebook’s user base. We expect the company’s international revenue per user to increase at a faster rate, going forward. Moreover, the new products will help the company to face intensifying competition in the near term.
Currently, Facebook sports a Zacks Rank #1 (Strong Buy).
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