Facebook Acquires Giphy: What it Means for Investors

It’s always noteworthy to see a major company making an acquisition. Although they don’t always work out, acquisitions can provide businesses with new opportunities to grow and improve their net margins. It’s particularly interesting to see a major company invest in acquisition during times of economic uncertainty, which is what we saw with Facebook last week.

Facebook announced that they are acquiring the company Giphy, a business in the tech space that already was receiving a ton of traffic from Facebook’s applications. Facebook is a company that has been steadily buying up technology businesses over the years, and this acquisition makes a lot of sense if you understand its business model and what its growth objectives consist of. However, every acquisition has its unique set of risks to be cognizant of as well.

Let’s take a more in-depth look at Facebook’s acquisition of Giphy below and decide what exactly it means for investors going forward.

What is Giphy?

Although the specific amount of the acquisition has not been confirmed by Facebook, the amount is rumored to have come in at around $400 million. You might be wondering what Giphy is and why Facebook wanted to buy it. Giphy is an animated image database and search engine that allows users to find GIFs to send via text messaging or social media. For the people who are less tech-savvy, a GIF is an animated image loop that can spice up ordinary messages and allow users to express themselves digitally in entertaining ways.

Giphy would have likely been valued much higher if the company had consistent advertising revenue, but they only just started featuring ads. It’s important to understand that Giphy is already integrated into many of the internet’s most popular applications and services, which means that there is nice potential for ad revenue. Although there are questions about how profitable Giphy can become, Facebook was attracted to the advertising opportunities that are possible with the Giphy platform along with its user data.

Makes Sense for Facebook

Facebook has been known to make some smart investments in companies over the years. Look no further than the acquisitions of Whatsapp and Instagram to see some of the deals that have worked out well for them in the past. The purchase of Giphy might not seem that exciting to Facebook investors at first, but the truth is that this acquisition makes a lot of sense for the company.

Although we don’t know all of the plans that Facebook has for Giphy, we know that it will be further integrated into existing Facebook applications like Instagram and Whatsapp so that users will be able to upload and incorporate GIFs. The Giphy platform will also likely provide new advertising avenues for Facebook. Perhaps the biggest reason why the Giphy acquisition makes sense is that Facebook will be gaining access to vast amounts of user data from the application. We all know that Facebook’s business model largely revolves around using consumer data to create targeted advertising, and Giphy will help the company learn about how people are searching for and using GIFs on a daily basis.

Antitrust Concerns

Although the acquisition seems to make sense for Facebook’s business model, it won’t help the company’s case against antitrust concerns. The tech giant has already faced intense antitrust scrutiny as they continue to buy up competitors in the industry. The Giphy acquisition is essentially daring regulators to continue prying into their startup acquisitions. As an investor, you have to be somewhat concerned about this since the company has previously faced investigations related to antitrust concerns.

It remains to be seen whether or not the company will have to pay out more fines or deal with more regulatory issues in the future as a result of acquisitions such as this one. With the way that Facebook continues on their startup shopping spree, it would appear that Mark Zuckerberg and his management team aren’t too worried about antitrust concerns for the time being.

Continued Growth

As an investor, you should be excited about Facebook’s plan to continue acquiring up-and-coming businesses. It shows that the company has the cash on its balance sheet to continue its growth and that they aren’t too worried about antitrust issues going forward. The Giphy acquisition might pay off nicely in the long-term, although Facebook has some work to do in order to really transform Giphy into a strong advertising revenue stream that positively impacts EPS growth. With that said, the data that they are gaining access to from the acquisition will certainly help Facebook improve their business in some way. Mark Zuckerberg has a tendency to stay ahead of the curve in terms of ingenuity, and the Giphy acquisition is very likely another part of his master plan.