Let the Instagram digestion process begin.
Facebook (Nasdaq: FB) is ready to swallow down Instagram.
Finding the deal to be "fair, just and equitable" yesterday, the California Department of Corporations is nodding approvingly at Facebook's intentions to complete the stock and cash deal. Facebook received antitrust approval from the FTC last week.
The deal for Instagram turned heads earlier this year for its stiff $1 billion price tag, though just $300 million of the deal was in cash. The value of the equity component has cratered as the social networking leader's stock has tanked since May's IPO. The deal is now worth closer to $740 million.
However, there's no reason for Facebook to sit still. There are plenty of companies worth acquiring. Pushing stock may be a hard sell after seeing the share price cut in half since May's IPO at $38 but, thankfully, Facebook is flush with cash. The dot-com titan closed out its latest quarter with $10.2 billion in cash, including $6.8 million raised during its springtime IPO.
Let's go over some of the public companies that may make tempting acquisition targets.
Ancestry.com (Nasdaq: ACOM)
You don't need to twist Ancestry.com's arm. The leading genealogy website is apparently on the market. Sources are telling Bloomberg that it's trying to smoke out higher buyout offers than what it has gotten from a pair of private equity firms.
Care to cut in, Facebook?
As impressive as Facebook's growth may be, it's still relying on ad revenue for 84% of its revenue. Acquiring a premium genealogy website would help diversify its revenue streams. One can also only imagine how much larger Ancestry.com's subscriber base of 2 million would get, once promoted to Facebook's 955 million connection-hungry users.
Groupon (Nasdaq: GRPN)
Yes, the daily deals leader is a mess. The stock has shed more than 40% of its value since posting disappointing quarterly results two weeks ago. However, the company that went public as a $12 billion company is now worth less than $3 billion. Back out the company's nearly $1.2 billion in cash and equivalents, and you arrive at an enterprise value of less than $2 billion.
Groupon is profitable and growing, much to the surprise of many skeptics who argue that the company, and its model, are irreparably broken. Analysts see Groupon earning nearly $250 million next year on $2.8 billion in revenue. In short, it would be accretive to Facebook. Yes, Mark Zuckerberg abandoned taking on Groupon with its short-lived Facebook Deals last year. It wasn't worth the investment to chase the hype. Well, now that the investment and hype have settled down, Facebook has a great opportunity to jump back in with the market leader.
Netflix (Nasdaq: NFLX)
If Groupon is a controversial choice, let's raise the stakes with Netflix. Investors may not like Netflix these days, but the company closed out its latest quarter with more than 30 million subscribers.
Facebook knows Netflix. CEO Reed Hastings sits on Facebook's board. Integration of the two companies would make it easier for Netflix to grow as it continues its global push, while Facebook expands its influence beyond the desktop.
Zynga (Nasdaq: ZNGA)
Oh, yes. I went there.
Zynga joins Groupon as busted IPOs that trade at a sliver of their original debutante prices, yet can back up nearly half of their current market caps with balance sheet greenery.
The social gaming leader behind CityVille and Words With Friends is clearly out of favor, but it still accounts for a good chunk of Facebook's business outside of ad revenue. One can rightfully argue that Facebook shouldn't play favorites by snapping up the top producer of Facebook apps. There's some deep merit to remaining developer agnostic. However, acquiring Zynga would be a smart way to make sure that it doesn't come up on the losing end of the equation, as casual and social gaming migrate to smartphones.
Ready those bidding cards
A year ago, $10.2 billion wouldn't be enough to buy Groupon, Netflix, or Zynga.
Today that's enough to buy all three companies combined -- along with Ancestry.com as a door prize.
Are there opportunities to be had in snapping up privately held darlings that can't go public to raise money in this environment? Absolutely. However, there are plenty of publicly traded bargains there for the bidding.
C'mon, Facebook. It's time for a little back-to-school shopping.
A world of opportunity
There's a new premium report on Facebookdetailing the opportunities and challenges in store for its shareholders. The report includes a full year of updates, so time's ticking. Check it out now.
