Not every acquisition can work out as well as Instagram. Facebook (NASDAQ:FB) announced yesterday that it is killing off three social media apps, two of which were acquired in recent years. The outgoing apps are Hello, Moves, and tbh.
Hello was developed in-house and allowed users to merge contact information from a phone. (Uploading contact lists is one of the key tools that Facebook uses to create shadow profiles of non-Facebook users.) Facebook acquired Moves, a fitness and activity tracking app, way back in 2014, and scooped up tbh, an anonymous teen polling app, just last October.
Facebook said it was shutting down the trio of apps "due to low usage," and will delete all user data within 90 days.
tbh may have cost just $17 million
No financial terms were ever officially disclosed for Moves and tbh, although the tbh acquisition was rumored to be less than $100 million, according to TechCrunch. However, there is a clue that suggests it was much, much less. Facebook's cash flow statement for the fourth quarter shows it paid $17 million for business acquisitions (net of cash acquired), and tbh was the only known acquisition during that quarter.
It's not surprising that Facebook would shutter Moves, as the company has done almost nothing in the realm of digital health over the past four years while others like Apple and Fitbit are hard at work building their respective digital health platforms. But shutting down tbh, which was acquired less than a year ago in order to strengthen Facebook's position among teens -- a demographic that investors fret may have become disenchanted with the service -- is peculiar to say the least.
tbh didn't have a large user base to begin with, having an estimated 2.5 million daily active users (DAUs) at the time of acquisition. Presumably, the DAU base has dwindled since then, leading to the decision to kill off the app.
Not all bets pay off
The good news is that there's not much downside to shutting down tbh, since Facebook may have only paid $17 million. tbh seems to have been more of a long-shot acquisition, the type that has an asymmetric risk/reward profile.
Since Facebook didn't pay exorbitantly, it didn't have a lot to lose, but there could have been considerable upside if Facebook had been able to scale up the user base as well as it did with some of its other acquisitions (most notably Instagram, which Facebook grew from 30 million users to 1 billion users over the course of six years).
Teens are a notoriously fickle demographic, with preferences changing rapidly as users move from one fad to another. It appears that tbh may have been one such fad, and Facebook made a small bet that didn't pay off.
Evan Niu, CFA owns shares of AAPL and Facebook. The Motley Fool owns shares of and recommends AAPL, Facebook, and FIT. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.