What Facebook Would Look Like If It Were Broken Apart

October 11, 2019 by Jon C. Ogg

Social media and technology companies alike have been under more intense scrutiny by the public, by Washington and by industry watchers and foreign governments in recent months and years. Whether the issues are about the companies having too much power, a lack of competition or they have simply been bad actors is something that can be debated endlessly.

Facebook Inc. (NASDAQ: FB) is no stranger when it comes to regulatory threats of late.

Democrats and Republicans alike have their own criticism of Facebook and others. It is very hard to determine what, if any, efforts will be made in regulating or breaking up Facebook if antitrust issues come to pass.

24/7 Wall St. has covered Facebook since before it came public in 2012. The leader in social media has made too many acquisitions to easily count, and on top of acquisitions it has made many tests and product launches of its own in areas that compete with existing social media and technology efforts of other companies.

It seems hard to imagine that Facebook is now 15 years old, but here are just some of the statistics about the company that will not be updated until its next earnings release. Facebook has 39,651 full-time employees, and it has 1.59 billion daily and 2.41 billion monthly active users. More than 2.1 billion people around the globe use Facebook, Instagram, WhatsApp or Messenger every day on average, and over 2.7 billion people use at least one of its family of services each month.

There is little reason to look into every single facet inside the Facebook empire because many parts would not be considered core operations as they stand now. Many of the launches and efforts have also failed to catch on or remain important to the core operations. The best focal points are around the core Facebook service, followed by Instagram, WhatsApp and Messenger.

The social media giant also has purchased patents under Friendster, it has facial recognition technology that might be more powerful than many governments, and it has its own advertising and media-sharing efforts to consider. Facebook also owns the virtual and augmented reality technology from OculusVR.

Facebook acquired Instagram for $1 billion in 2012, its largest deal to that time. While it has seen some changes, Instagram is a social photo and video sharing operation that operates under its own brand and its own stand-alone app. It competes against Snapchat and many features are integrated with the Facebook services. The company’s IGTV effort has some competition against YouTube, and Instagram competes for some of the same eyeballs and marketing dollars against Pinterest.

In an outright break-up of the company, Instagram could be spun back out as a standalone entity and could either be unbundled from Facebook entirely or be opened up to any competing and noncompeting interests. Whatever its value would be, it would be multiple times more than the $1 billion Facebook paid for it.

WhatsApp was a $19 billion acquisition by Facebook in 2014. It has its own website with its own look and feel, and now the service has over a billion users from more than 180 nations using it for free and secure messaging and calling from smartphones — without having to pay for international text and voice charges. This easily could be carved back out as a standalone company, and it could choose to (or be forced to) open its operations up to any and every company out there.

As a standalone company, WhatsApp could have many possibilities, but the value on an earnings and revenue basis without charging similar to a wireless carrier might be a harder business model on a standalone basis.

Facebook’s Messenger platform could theoretically be migrated over to WhatsApp, but unless there was a vindictive or punishing effort to lower the value of the core service, then it would be easy to see how Facebook could argue that the Messenger is an integral function that allows the core-Facebook service (particularly on desktops) to allow direct person-to-person communications. The value of a standalone messenger company at this point would be difficult to derive much upside.

OculusVR was a $2 billion acquisition from 2014 that has future applications within the core Facebook. It also is likely to become more widely used in the coming years as consumer technologies become more powerful and more affordable. That said, Oculus also could fit in nicely with Instagram or WhatsApp, or it could be forced into being its own standalone technology company again.

On its own, OculusVR could partner with any video game and entertainment company, any communications provider and a slew of other applications. After all, virtual reality and augmented reality might not even be 1% of the way to their potential.

Facebook also has several services that regulators could determine need to be plucked away or moved outside of its core. These would include its Pages service, which supports websites of causes and small communities; its Events service that lists movies and local events that others are interested in; and there is the Marketplace that allows users to list for sale items such as cars, homes, clothing, electronics, furniture and all other items in a photo-classifieds format.

The additional services mentioned here could all be bundled into a standalone entity and be required to integrate with other social media and other online companies. Yet, the value here would be very difficult to determine without knowing if these would all be regrouped together or parsed out.

Facebook had a market value of more than $500 billion as of October 9, 2019. It’s nearly impossible to know ahead of time if the sum of the parts would be immediately worth more than the entity as a social and online conglomerate without seeing how the regulatory framework in the United States and abroad ends up. Since the Libra cryptocurrency has not even really begun, we have not assigned any focus or value, and it’s impossible to know where it might land if it was housed or bundled with a noncore spin-off.

As of June 30, 2019, Facebook had more than $48.5 billion in cash and short-term investments and a stated value of $117 billion for all assets (including $18.3 billion in goodwill and another $1 billion in other intangible assets). It had virtually no serious debt at the time, and its total liabilities were $28.2 billion. All those would have to be carved up if Facebook were to be forced to become multiple companies.

One last issue that makes it so hard to predict Facebook’s future outcome goes beyond politics. The biggest issue is that large software, internet and technology companies are also under regulatory scrutiny and no significant break-up or mass regulatory effort has taken shape.