) has sought antitrust approval from the European Union for its
purchase of mobile-messaging service, WhatsApp.
In Feb, 2014, Facebook declared its intention of acquiring Whatsapp
for a whopping sum of $19.0 billion. The company expected this
acquisition to not only expand its mobile product lineup but also
to add a predominantly young user base.
Since the time Facebook first floated the idea of acquiring
WhatsApp, some European telecom companies have raised concerns
about the proposed deal, apprehending that the social network will
have a monopoly in the mobile communications market.
Facebook's WhatsApp is expected to offer free voice-call services
by the end of second quarter of this year. It announced that the
service will initially be available on iOS and Android and will
gradually be extended to Windows and Blackberry users. WhatsApp's
free voice-call service will intensify competition for telecom
companies such as
This acquisition has already been approved by the Federal Trade
Commission (FTC) in the U.S. This step of seeking approval from the
European Union was initiated by Facebook, as it will save the
company from multiple regulatory reviews in different European
However, the acquisition deal may be outside the purview of the
European Commission as WhatsApp does not earn sufficient revenues
to fit into the given criteria. Nevertheless, the commission can
take responsibility for the case provided three national regulators
raise objection against the same.
Allthough any negative result of the aforesaid review will likely
to be a headwind for Facebook, we believe that it will not
significantly impact its revenue growth in the near term. Moreover,
the decision of the European Union will in no way prevent the
closure of the acquisition deal. At the most, it can prevent the
usage of WhatsApp in Europe.
Facebook intends to use the services of Whatsapp in its
internet.org program. Hence, if WhatsApp gets banned in Europe then
the growth prospect of the internet.org initiative may be hampered
to some extent.
Facebook's rapid pace of acquisitions is expected to weigh down on
profitability and cash balance in the near term. Intensifying
competition from the likes of
) remains a major concern.
However, we believe that Facebook's growing mobile user base,
Instagram's increasing popularity, frequent launch of new products
and international expansions will boost the company's top line and
profitability going forward.
Currently, Facebook has a Zacks Rank #2 (Buy).
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