Facebook's deal to buy Giphy should serve as one more example of how cash-rich tech firms are using their balance sheets to strengthen their long-term competitive hands in the current environment. At least provided regulators let it happen.
According to Axios, Facebook is paying around $400 million to buy Giphy, whose platform lets users create, search for and share GIFs and digital stickers. That's less than the $600 million valuation that Giphy received in a 2016 funding round, and is arguably good value for a platform whose content was claimed to reach 700 million people and be sent more than 10 billion times daily at the end of 2019.
The high cost of supporting all that content-sharing, together with the pressures facing the brand advertising market right now, likely had much to do with Giphy's willingness to sell to Facebook at a discount. And between its data center infrastructure and advertising muscle, Facebook can help address both problems.
Giphy's main source of revenue to date has involved showing sponsored GIFs from the likes of McDonald's, Target and Pepsi within GIF search results -- do a GIF search with the word "soda" in it, and a Pepsi sponsored GIF might appear -- and letting users subsequently share them. Between its giant advertiser base, considerable user data and advanced targeting and measurement abilities, Facebook has a few different ways to help grow this business.
Facebook could also drive Giphy's usage higher by promoting and more tightly integrating Giphy's services across its platforms. That said, a lot of integration has already happened, with Facebook claiming that half of Giphy's traffic is related to content-sharing on Facebook's various apps.
One area for additional integration: Giving Instagram users the ability to add Giphy's content to feed posts and Stories directly from the Instagram app (currently, they can only do this via Giphy's app or website). With Giphy being added to Instagram's team, odds are good that Facebook will look for ways to make Instagram work more seamlessly with Giphy, as the former continues battling Snap (SNAP) , TikTok and others for screen time.
From all indications, much of the other half of Giphy's traffic is tied to sharing that happens on rival social media and messaging platforms, such as Twitter (TWTR) , Snapchat, TikTok and Apple's (AAPL) iMessage. And from the perspective of Facebook, which has promised to continue providing third-party access to Giphy's programming interfaces (APIs) and invest further in Giphy's "technology and relationships with content and API partners," this might not be a bug but a feature.
To the extent that sponsored GIFs -- and perhaps in the future, sponsored stickers -- get shared on platforms such as Twitter and iMessage, Giphy could give Facebook a way to monetize activity on rival platforms. Likewise, to the extent that sponsored GIFs are shared by Messenger and WhatsApp users, they could aid Facebook's nascent efforts to monetize its messaging apps.
But before any of this can happen, regulators need to approve the deal. And while Facebook's promise to keep supporting third-party app integrations should help its cause, antitrust regulators are definitely paying close attention right now to M&A activity by tech giants, with the FTC closely probing Facebook's activity in particular.That said, should the FTC and other regulators sign off on the Giphy acquisition, it would join Facebook's $5.7 billion investment in top Indian mobile carrier Jio as a shrewd use of cash at a time when the macro environment has made the strategic value of a strong balance sheet a lot greater.