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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.
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.
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.
About the Author
Michael A. Robinson is a 35-year Silicon Valley veteran and one of the top technology financial analysts working today. He regularly delivers winning trade recommendations to the Members of his monthly tech investing newsletter, Nova-X Report, and small-cap tech service, Radical Technology Profits. In the past two years alone, his subscribers have seen over 100 double- and triple-digit gains from his recommendations.
As a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs and high-profile industry insiders. In fact, he was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon. And he was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
In addition to being a regular guest and panelist on CNBC and Fox Business Network, Michael is also a Pulitzer Prize-nominated writer and reporter. His first book, "Overdrawn: The Bailout of American Savings" warned people about the coming financial collapse - years before "bailout" became a household word.
You can follow Michael's tech insight and product updates for free with his Strategic Tech Investor newsletter.