The Decline in this Stock is all Google Needs
Shawn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ancestry.com (NASDAQ: ACOM) reported fourth quarter earnings in line with analyst estimates but showed weakness in estimated 2012 profit driven by a less than expected 12% growth in subscribers. The negative outlook caused shares of the company to plunge almost 17% by the end of trading this past Thursday. This significant drop in the share price will surely begin to attract suitors who could find value in ACOM’s assets.
Google (NASDAQ: GOOG), for example, could find value in integrating ACOM’s genealogy content to boost their information-driven business model or the search engine giant could tap the 1.7 million subscribers to integrate with their Google + social media offering. Both the content and subscriber base would make sense for the company and would be what is most likely touted to shareholders if the company did acquire ACOM. But Wall Street analysts and keen investors will most likely realize that the most strategic value for the company might be to make sure the assets don’t fall into the hands of a much more dangerous competitor.
Information Value
As investors debate the long-term profit value of the geneology research industry, one thing for certain is that ACOM has been successful in gathering an absolutely massive amount of content. 8 billion historical records have been digitized and put online. For a company like Google that prides itself on being able to let users have access to any information in a streamlined fashion, this type of content fits their agenda. But what Google would probably find more intriguing is that that ACOM’s users are very active in uploading their own content. 95 million pictures and documents have been uploaded to the site since inception, including over 60 million since 2009. As Google attempts to beef up its Google + social networking site, the idea of being able to integrate 95 million documents to existing users could give the company a much needed boost in traffic to compete against much larger social networking competitors.
Facebook Changes it All
The idea that Google should acquire ACOM for strategic purposes isn’t new. Fool.com analyst Rick Aristotle Munarriz wrote in his article, What’s on Google’s Buy List? that the company could increase shareholder value through acquiring ACOM, ditching the paid subscription model and switching to an ad driven model to monetize the subscriber base. That article was written in 2009 and Google obviously hasn’t pounced yet. But what has changed since 2009 and could give the search engine giant a little more sense of urgency is that there is now a viable competitor in Facebook (NYSE: FB), which will soon have greater access to capital come their initial public offering in May.
As there are many elements that make ACOM a good fit for Google, one could make the argument that the company would be even a better fit for Facebook given the social networking giant’s ambitions of promoting connectivity among its 845 million users (think Facebook Timeline). Facebook could also find value by appeasing Wall Street, which stresses that the company needs to find ways to diversify revenue beyond third party advertising, which currently represents around 85% of revenue.
When it Could Happen
Google could have a few months to perform their due diligence on the benefits of an acquisition since Facebook filed for their S-1 at the beginning of February. Companies don’t typically acquire other companies after filing to go public as the IPO process dictated by the SEC is already complex. Adding any additional complexities around the finances of the company could delay the offering.
Even with a generous 50% premium to ACOM’s current market, the total cost for Google would be under $2 billion. Given that the company has well over $25 billion in cash, even after subtracting the $12.5 billion in cash to be paid upon closing of the Motorola Mobility purchase some time in 2012, the acquisition would be easy for Google to manage.
Do you think Google acquiring Ancestry.com is a strategic move? Who else besides Facebook and Google would benefit from acquiring the company? Share your comments below.
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Motley Fool newsletter services recommend Ancestry.com and Google. The Motley Fool owns shares of Ancestry.com and Google. ShawnRobinson has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
