Why Apple should buy Facebook

Such a deal would let the social network's investors cash out at something close to what they were expecting.

By TheStreet Staff Jun 12, 2012 10:33AM

By Dana Blankenhorn


The biggest "tell" in what was otherwise a pretty boring Apple WorldWide Developers Conference Monday came during the iOS6 portion of the presentation, when Apple (AAPL) announced full integration with Facebook (FB).


Unlike most of what happened at the event, this went beyond what was rumored. A system for letting developers integrate their own apps with Facebook is also coming out, and it's now accessible directly from inside the App Store.


All of which got me to thinking:


At its Monday close Facebook is now worth "just" $58.4 billion, a long way from the estimated $100 billion figure talked about before the IPO. It's still pricey -- a price/earnings ratio of 87 -- thus unlikely to hit those heights any time soon.


Some of the investors who came in before the initial public offering, who could sell their shares once the "lockup" period expires, are either underwater or may perceive themselves to be.


Apple still lacks a social network. Its "cloud" is not a cloud at all, but a data center.


Facebook has been building a real cloud, using open source tools, for some time and it has engineers who really understand the need to save money on cloud installations if you want them to last.


My guess is Facebook's investors would jump at a bid of $80 billion. That's a huge premium from the current price.


As of March, Apple had a cash hoard estimated at $97.6 billion. It's continuing to accumulate cash, and its plans for a dividend are not expected to make a significant dent in the hoard. The company's market cap is $534 billion.


So Apple could easily do a half-cash bid for Facebook, acquiring a fast-growing asset with significant cloud presence for less than one-tenth its common stock and less than half the cash it has on hand.


Apple's biggest problem is that, insofar as its cash flow is concerned, it's mainly a manufacturing company. That's where its money comes from. That's where its growth comes from. That's why it sports a P/E of "just" 14.5 as against more than 17 for Google (GOOG).


Facebook is everywhere Apple isn't. It has a big lead over Google in social networking, and in terms of raw cost may become close to competitive in cloud. (Its assets are newer, thus there may be some efficiencies there.)


Selling to Apple would let Facebook's investors cash out at something close to what they were expecting. Mark Zuckerberg would go from having about $1 billion in cash to much more. Apple CEO Tim Cook could negotiate enough autonomy to make the move seriously interesting. Facebook would give Apple the advertising presence it lacks, and this is a deal only Apple could do so there is unlikely to be a second bidder.


It may be about the only really big thing Apple could do that wouldn't draw scrutiny from the U.S. Justice Department, because the two companies are in completely different businesses. And that problem of Facebook lacking a mobile strategy? Solved.


What is most disappointing to Apple bulls is how "normal" a company Apple has become under Tim Cook. It is, as I wrote last year, like Elvis being replaced with Jackson Browne. It is evolving into just another big tech, on a larger scale than anyone could have imagined at the start of this century but, still, just another big tech.


Buying Facebook would instantly make Apple younger, it would give Apple an ad presence, it would give Apple a better cloud story. It would give Facebook cash, access to capital and a real shot at competing with Google, which is currently more than two times its size in terms of market cap.


People call Zuckerberg the new Steve Jobs. When the mothership in Cupertino is ready for occupancy, he will have been trained to take over the bridge. He'll still be in his 30s when Cook is ready for retirement.


This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


More from TheStreet.com

Jun 12, 2012 11:14AM
FBs a loser. Apple is smarter than that.
Jun 12, 2012 2:08PM
A P/E of 87. Unreal. Anyone remember the dot com bust? Apple can rescue FB in a few years for a fraction of that.

Jun 12, 2012 11:45AM

Zuckerberg is a fraud !!! What did he create ?? internet picture book ?


Steve was a genious !!! (Mac, iPad, iPod, OS X, etc, etc, etc, etc)

Zuckerberg is nothing.....just a "smart" boy that took an idea from some roommate...

Jun 12, 2012 12:53PM
Interesting thought except that Facebook has a very big chance of becoming My Space in less than five years. To risky for all that money.
Jun 12, 2012 12:53PM

Apple must buy Facebook because they integrated it into iOS?  What about last year when they integrated Twitter into iOS?  Do they have to buy Twitter too?


Dana Blankenhorn is consistently wrong on everything.  He writes a million articles for SeekingAlpha, none of which are ever correct, and all of which are 100% link-bait.  For laughs, go find the article where he claims the iPad 3 will be a failure because it heats up to the balmy temperature of 80 degrees.


Do not ever post this trash on MSN again.

Jun 12, 2012 4:11PM
Apple would be crazy to buy facebook which will be nothing but another myspace within the next couple years.Pppl already are sick of facebook and the stupid damn timeline they make everyone use.
Jun 12, 2012 3:10PM
Buy FB?      Why?    Apple could just build their own.    
Jun 12, 2012 5:58PM
Dana and his credibility, which is none!

2007 he announced that the iPhone will fail.
2010 he announced proudly that the original iPad will fail.
2012 with much fanfare he again writes that the new iPad will fail.
It is all on the web, just search it.

How does this an keep his job, connection I supposed.  But I can write better, more colorfully, and accurate pieces than this man.  Shame on his editor!
Jun 13, 2012 3:03PM
Apple is crazy if it buys FB ... Why buy it when you can beat it and make it look like the next My Space.....Mr ZSuck is full of it ......with his marketing ploy as Face Book finds out that tageting consumers to be promoters is a bad idea. The mental and material keeping up with the Jones is long gone. And who care what anyone has. I buy what I want and because it is a throw away consumer based society( at least that is what is has become) consumers are now geared towards surving the storm and battening down the hatches...look at consumer spending down two months in a row...Meat consumption down, wage deflation and recession arround the corner. I am not worried or interested in the daily Face Book soap opera of who bought what or the false pemiss because I click on particular ad the entire ad campaign suddenly send me every companies ad in that category. by the way most people on Face book click on those ads for the fun of it. The joke is on Mark and false premiss.
Jun 12, 2012 12:20PM
Apple's integrating Facebook because Microsoft's Windows Phone already did it.
Jun 13, 2012 2:07AM
That would be as smart as kmart buying sears. Lol
Jun 12, 2012 1:24PM
"""Yesterday, Apple developers from all over the world gathered in San Jose for the Apple Worldwide Developer's Conference. Today's keynote address revealed a swath of new products, and improvements on old ones, that are likely to be fleshed out in upcoming days of the conference. Here's a very quick rundown: Macbooks all get Ivy Bridge processors (good news for Intel), and many Macbooks get high quality """"Retina"""" displays, including the newest """"next-generation"""" Macbook Pro http://su.pr/2H42KR
Jun 12, 2012 5:03PM
They should buy facebook because all of the REAL and true things that the Government and law inforcement has been able to allocate from Facebook.  I personally have confessed my true intentions good and bad on facebook, nothing criminal mind you but of what my true desire and intentions are and guess what, I have carried them all out!  So facebook is definately worth investing in due to people like me!
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