Why This Facebook (Nasdaq: FB) Acquisition Means Huge Profits

[Editor's Note: This inside look at why Facebook's (Nasdaq: FB) recent purchase of WhatsApp is such a huge deal for investors was first published March 7 in Michael A. Robinson's Strategic Tech Investor. To get all of Robinson's research as soon as it's released, click here.]

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When Facebook Inc. (Nasdaq: FB) recently announced it was buying the messaging service WhatsApp for $19 billion, it touched off an avalanche of controversy and criticism.

We saw comments from the usual market pundits and stock jockeys. But with WhatsApp – thanks to the unique name, and the immense purchase price – even the late-night comedians stepped up.

This line from new "Late Night" host Seth Myers pretty much sums it all up:

"President Obama has announced that 4 million people have signed up for ObamaCare," Myers deadpanned. "Obama says he wants to hit 7 million users by the end of March, at which point he'll sell it to Facebook for $10 billion."

The point of all these zingers was simple enough. To comedians – and the cable-channel stock jockeys – Facebook's decision to spend $19 billion on a five-year-old startup with just 55 employees and 2013 revenue of around $20 million just seems, well, insane.

But as someone who's been watching the tech sector, and who's watched sector transitions like this one before, I'm going to make a prediction .

Two, in fact …

Facebook founder and Chief Executive Officer Mark Zuckerberg will have the last laugh here.

And if you follow my recommendation … so will you.

Let's take a look to see why.

Killer Apps

Make no mistake: The WhatsApp deal offers enormous potential benefits for Facebook, which already derives something like 53% of revenue from mobile ad sales.

And WhatsApp can become the straw that stirs the drink.

The startup has already become a key player in the global mobile landscape. With WhatsApp pushing the boundaries of technology, apps are becoming high-tech cash machines.

To understand their value, look at two tech leaders – Apple Inc. (Nasdaq: AAPL) and Google Inc. (Nasdaq: GOOG).

In fiscal 2013, Apple had $10 billion in sales from its app store. And Google, with its ubiquitous Android operating system, dominates the mobile market. Strategy Analytics said Android had a 79% market share last year. And after crunching the numbers, Forbes recently calculated that Google's app store has enjoyed about 48 billion app downloads over the past several years.

The app market is huge. And apps play a critical role in the world's high-tech ecosystem.

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About the Author

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

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