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Facebook Seeks EU Approval for WhatsApp

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Reportedly, Facebook (FB - Free Report) has sought antitrust approval from the European Union for its purchase of mobile-messaging service, WhatsApp.

In Feb, 2014, Facebook declared its intention of acquiring Whatsapp for a whopping sum of $19.0 billion. The company expected this acquisition to not only expand its mobile product lineup but also to add a predominantly young user base.

Since the time Facebook first floated the idea of acquiring WhatsApp, some European telecom companies have raised concerns about the proposed deal, apprehending that the social network will have a monopoly in the mobile communications market.

Facebook’s WhatsApp is expected to offer free voice-call services by the end of second quarter of this year. It announced that the service will initially be available on iOS and Android and will gradually be extended to Windows and Blackberry users. WhatsApp’s free voice-call service will intensify competition for telecom companies such as AT&T (T).

This acquisition has already been approved by the Federal Trade Commission (FTC) in the U.S. This step of seeking approval from the European Union was initiated by Facebook, as it will save the company from multiple regulatory reviews in different European nations.

However, the acquisition deal may be outside the purview of the European Commission as WhatsApp does not earn sufficient revenues to fit into the given criteria. Nevertheless, the commission can take responsibility for the case provided three national regulators raise objection against the same.

Allthough any negative result of the aforesaid review will likely to be a headwind for Facebook, we believe that it will not significantly impact its revenue growth in the near term. Moreover, the decision of the European Union will in no way prevent the closure of the acquisition deal. At the most, it can prevent the usage of WhatsApp in Europe.

Facebook intends to use the services of Whatsapp in its program. Hence, if WhatsApp gets banned in Europe then the growth prospect of the initiative may be hampered to some extent.

Facebook’s rapid pace of acquisitions is expected to weigh down on profitability and cash balance in the near term. Intensifying competition from the likes of Google (GOOGL - Free Report) , Yahoo and Twitter (TWTR - Free Report) remains a major concern.

However, we believe that Facebook’s growing mobile user base, Instagram’s increasing popularity, frequent launch of new products and international expansions will boost the company’s top line and profitability going forward.

Currently, Facebook has a Zacks Rank #2 (Buy).

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