- Yahoo has acquired Blink, a private messaging service.
- It has shut down Blink's app, making this a talent and technology acquisition.
- Yahoo's stock price is undervalued with strong upside potential.
Facebook’s $19 billion acquisition of Whatsapp stirred up the private messaging/chat app space earlier this year. On 13 May 2014, a few months down the line, Yahoo (NASDAQ:YHOO) has added to its swelling list of acquisitions by acquiring Blink, a competitor of Snapchat. However, the details of the acquisition are still under wraps, barring the fact that Yahoo will be shutting down Blink’s chat app, implying that this could largely be a talent and technology acquisition.
Blink, a private messaging service had about 100,000 users in early 2014 when it launched its Android app. The service allowed users to pick a time frame post which, messages, images and videos received by the user would be deleted automatically, once the user has viewed them.
Yahoo has acquired about 40 companies since CEO Marissa Mayer took the helm in July 2012. The company is focused on transitioning into a mobile platform, to shore up its declining revenue. Mobile is pitted as the next big driver of revenue as users increasingly use their smartphones and tablets to access the internet.
Similar efforts are being made by other internet companies like Facebook, which had made a $3 billion offer to Snapchat. However, Snapchat rejected the offer and Facebook went on to acquire Whatsapp. Facebook had also started its own private messaging service ‘Poke’, which it shut down last fortnight.
In Feb this year, Japanese e-commerce company Rakuten Inc. paid $900 million to acquire Viber, an app that offers free calling and messaging services. The big draw for these companies is that often, mobile messaging apps give them access to a large user base. For instance, Whatsapp had about 450 million users at the time of its acquisition by Facebook.
China’s Tencent has leveraged some of its other businesses to monetize users of its popular messaging app WeChat. The company has integrated mobile payments and e-commerce/online retail into WeChat to enable its users to make purchases and payments. The platform has now integrated LinkedIn profiles as well, though no information about any monetary arrangements is available on this front.
In this case though, user acquisition doesn’t seem to be the agenda, as Yahoo is shutting down Blink. It appears that Yahoo is interested in Blink’s 7 member team which will now join Yahoo’s 500 strong team focused on mobile product development. Blink’s founders are former Google employees, and one of them has previously worked at Apple, Youtube and Google.
Yahoo has in the past acquired companies and shut them down, like it did with Donna, the personal assistant app. Yahoo redeployed Donna’s team to work specifically on Yahoo Mail. In the case of Blink, it’s unclear if Yahoo will roll out a Yahoo branded messaging app or do something else with its newly acquired team. However, the former seems somewhat unlikely. Yahoo has only expressed that the team will work on its ‘smart communication products’.
Yahoo is revamping ‘Yahoo News Digest’ and ‘Yahoo Mail’ among other services, and that could be why Blink’s team might be of interest to Yahoo. Yahoo currently has approximately 430 million monthly users, a small number when compared to Facebooks 1 billion monthly mobile users as on Q1 2014.
Irrespective of the impact of this acquisition, we think Yahoo stock is undervalued, as we had discussed in our previous coverage of Yahoo after Alibaba’s IPO filing. Though Alibaba has valued itself at $109 billion, which is much lower than analyst estimates, that valuation is not necessarily final.
We think Alibaba could end up getting valued at $150 billion, in which case, we think Yahoo stock price is worth about $43 a share, representing a 29% upside from its current price of $33.4. However, a conservative estimate based on Alibaba’s $109 billion valuation indicates an upside of 5% from its Yahoo’s current price, to about $35.2 a share.
To see the current stock price of Yahoo click here: (NASDAQ:YHOO)