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Facebook (FB) Announces Acquisition of Popular Teen App TBH

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Facebook Inc. (FB - Free Report) recently announced the acquisition of “an anonymous polling app” called TBH for an undisclosed amount. However, per TechCrunch, the deal closed at “less than $100 million”.

TBH, which stands for “To be honest”, allows users to send compliments to friends anonymously. The app was launched in August this year and since then it has been able to attract a lot of teenagers to its platform.

Per TBH, the app has been downloaded by more than 5 million people who have sent over a billion messages so far. It also topped the list of free downloaded apps on Apple’s (AAPL - Free Report) App Store last month.

The latest acquisition reflects Facebook’s new mission, which is to “give people the power to build community and bring the world closer together."

Per The Verge, Facebook was quoted saying "We’re impressed by the way tbh is doing this by using polling and messaging, and with Facebook’s resources tbh can continue to expand and build positive experiences."

We believe these initiatives will significantly boost Facebook’s user base and sustain the share price momentum. Notably, Facebook has gained 51.7% year to date, substantially outperforming the industry’s 27.4% rally.

TBH to Help Facebook Fight Snapchat

Per Piper Jaffray’s (PJC) 34th semi-annual Taking Stock with Teens survey, Snap's (SNAP - Free Report) messaging application chat has once again emerged as the most preferred social networking medium among teens. Snapchat was followed by Facebook’s photo sharing app Instagram, which enjoyed the support of 24% of the respondents while the main social networking platform had 9% of the respondents voting in its favor.

Twitter (TWTR - Free Report) and Pinterest finished at the fourth and fifth spots, respectively with merely 7% and 1% votes in the survey.

Per eMarketer, this year, Snapchat’s domestic user base is likely to increase 25.8% to 79.2 million driven by a 19.2% increase in users in the 18 to 24 age group. In fact, for the first time, Snapchat is projected to have the highest teen audience (12 to 17 & 18 to 24 cohorts) compared to both Facebook and Instagram, per eMarketer.

On the other hand, for Facebook, eMarketer anticipates a 3.4% decline in its monthly average user base for the important 12 to 17 age group, a sharp deceleration from 1.2% decline witnessed last year. An 8.8% increase in Instagram users in the 12 to 17 age group is projected.

Moreover, per market analytics company, Jumpshot, as reported by Recode, Snapchat added 52% new users in the United States compared with 48% for Instagram in August.

Previously, we have seen that WhatsApp and Instagram acquisitions have not only expanded the company’s mobile product lineup but also added to its user base, which is predominantly young. We believe that by bringing TBH under its fold, Facebook will be able to cash in on the app’s growing popularity among teens and counter competition.

Teenagers are the most attractive to social media companies for the ad dollars they bring. As we know, advertising forms the mainstay of Facebook’s revenues. Thus, the company’s attempt to lure this coveted group to its platforms is prudent in our view.

Zacks Rank

Currently, Facebook sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

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