NEW YORK – On Tuesday, Wired reported that Facebook (NASDAQ:FB) just paid up to $ 200 million to acquire a company that helps subscribers save on their smartphone bills. Analysts believe the reason for this acquisition is clear; Facebook needs to keep adding users and those new users are increasingly cash strapped.
In fact, new users in the U.S. are slowing, and Facebook is reaching saturation levels in developing markets, as such, the company is turning to emerging markets to drive user growth. However, there is one problem, these users do not have any money, and Facebook needs users who can consume to bring in advertising revenue. The move into emerging markets is not without risks either, but some analysts believe Facebook could reap tremendous rewards from a pioneer position.
According to reports, the Israel-based Onavo has confirmed that Facebook is acquiring them. The acquisition will give Facebook access to a suite of apps for reducing mobile data usage via compression (not to mention its first Israeli satellite office, in Tel Aviv). Trimming smartphone bills is particularly important for users in developing countries, and Onavo is Facebook’s second big play for such users in as many months, the other being its Internet.org initiative to wire the developing world.
In the second quarter, revenue in emerging markets grew by 88 percent versus 43 percent in the U.S. Monthly users in emerging markets grew by 32 percent, while the U.S. experienced just 6 percent growth. However, a developing world user generates one-seventh the revenue of a user in the U.S. So, analysts either love the growth story or their fret about the acquisition costs and time to breakeven.
According to Facebook CEO Mark Zuckerberg, emerging markets ‘may not actually be proﬁtable for us to serve the next few billion people for a very long time, if ever.’ But the company believes the developing world business opportunity is very real. Now they are putting tens of millions more dollars to back that belief up.
Shares of Facebook opened at $ 50.00 on Tuesday.