4 Tech Stocks That Look Like Buyout Bait

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Facebook’s (FB) Mark Zuckerberg recently shook up the tech industry yet again with his $19 billion deal for mobile messaging service WhatsApp. He not only demonstrated again his laser focus on dominating mobile — and that no price seems too crazy to achieve it — but he also potentially stirred the waters of M&A across other tech stocks and startups.

tech-stocks-whatsappComing up with a solid list of buyout prospects is far from easy, and it’s often wrought with stories that don’t end up panning out. For instance, wasn’t BlackBerry (BBRY) supposed to be a slam dunk for a transaction a couple years ago? Maybe it was, maybe it wasn’t — but it’s independent today, proving a lot of crystal balls wrong.

Still, there’s a large group of tech stocks that need more mobile presence and have the bankroll to ramp up M&A activity. While Zuckerberg has said that it’s stepping away from the time being, you still have Google (GOOG), eBay (EBAY), Amazon.com (AMZN), Microsoft (MSFT), Apple (AAPL) and even Yahoo (YHOO) as potential buyers in the U.S. That’s not to mention oft-overlooked operators in Asia such as Alibaba (which may come public soon and would have more cash to deploy) and Tencent (TCEHY).

But what tech stocks will they eat up? Well, here are four possibilities:

Buyout Bait Tech Stocks: Groupon (GRPN)

tech-stocks-grpn-stockGroupon (GRPN) was slammed last month thanks to a weaker-than-expected outlook, and GRPN currently is off by more than 25% year-to-date.

While Groupon has made great strides in its restructuring — which has involved a transition away from daily deals to e-commerce — it still faces tough headwinds in its new business. Namely, it has to deal with entrenched competitors Amazon and eBay. That means heavy infrastructure investments (for things such as warehouses and supply chain technology), and that’s a problem for a company with only $1.2 billion in the bank.

In other words, Groupon might need to seek out a buyer just to have enough resources to pursue its strategy.

So why would a buyer be interested? A few tangible benefits would include the footprint in both e-commerce and daily deals. Also, there’s Groupon’s extensive sales force, which is focused on small businesses. Plus, GRPN has an impressive mobile footprint — last quarter, the Groupon app was downloaded 9 million times for a total of 70 million downloads, and 80% of the quarter’s downloads didn’t involve any advertising. All told, 50% of its worldwide transactions come from mobile. And Groupon’s market cap of $6 billion, while not small, is at least digestible.

Obvious buyers for Groupon would include Amazon and Google, the latter of which actually offered to buy GRPN a few years ago. But another interesting prospect is Chinese e-commerce site Alibaba, which is looking for ways to go beyond China. Groupon would give it a well-known name (and thus a decent foot in the door) in America.

Buyout Bait Tech Stocks: Control4 (CTRL)

tech-stocks-control-4-ctrl-stockThe home automation market has been around for a long time, but so far, it has remained mostly niche. However, some think the industry is primed to go mainstream soon following Google’s recent $3.2 billion acquisition for Nest Labs, the developer of the popular Nest Learning Thermostat.

One of the beneficiaries of a blowup in this space would be Control4 (CTRL), which develops a full-blown operating system for home automation, managing functions like temperature, lighting and security, and it also hooks into smartphones and tablets. CTRL sells its technology on a subscription basis.

Control4 would at least be attractive given not only its future opportunity, but also its proven growth. Last year, CTRL grew revenues by 17% to $128.5 million, and non-GAAP net income came to $8.4 million, or 38 cents per share, which was a 72% improvement. And at less than $500 million in market cap, Control4 would hardly break the bank.

Then who might buy CTRL? Potential suitors include tech stocks Microsoft and Cisco (CSCO), which both have designs on home automation. But you could even see interest from telecom or cable operators like AT&T (T), Verizon (VZ) and Comcast (CMCSA), who would love to be more entrenched in the living room.

Buyout Bait Tech Stocks: Yelp (YELP)

yelp-stock-tech-stocksMessaging is one of the core functions of mobile, which is a key reason Facebook spent so much on WhatsApp. Well, local reviews and information are another core function, and the dominant player in that space is Yelp (YELP).

Yelp also is growing rapidly, at least on the top line. In its most recent quarter, YELP grew revenues by 72% year-over-year to $70.7 million and shrunk its net loss from 8 cents per share to 3 cents. During this period, Yelp’s monthly active users improved by 39% to 120 million.

There’s no arguing that Yelp is a potential buyout prospect … it already has fended off several buyout offers, including (again) Google. The search giant likely views Yelp as attractive because its own efforts in the industry have lagged.

However, to me, the most interesting buyer could be Facebook. While it doesn’t seem like a direct one-for-one with what Facebook currently does, and again, while Zuck has said the powder will stay dry for a bit, YELP very much aligns with Zuckerberg’s mission to dominate mobile. Facebook’s endless data combined with Yelp’s own information and services could make a formidable pairing.

Buyout Bait Tech Stocks: Salesforce.com (CRM)

crm stock tech stocksA few years ago, the idea of “cloud computing” seemed kind of fanciful — after all, what company would trust its valuable information outside its fortified IT walls?

Now, of course, we know that big business was more than willing to buy in, and one of the biggest winners has been Salesforce.com (CRM), which has cruised ahead by 800% in the past five years.

CRM has invested heavily in marketing and R&D to keep up growth, and the company has introduced a variety of innovations in mobile and social networking. Plus, Salesforce has been aggressive in acquisitions, including its 2013 buyout of ExactTarget — a top player in cloud-based marketing systems — for $2.6 billion.

In the latest quarter, CRM’s revenues hit $1.08 billion, up 36% on a YOY basis, marking the first time the company reached the $1 billion mark for a quarter.

Yes, now the cloud is a must-have and is making inroads into the businesses of old-line companies like Oracle (ORCL), SAP (SAP) and Microsoft. So, how would the old guard keep up? Well, it could by Salesforce.

The biggest hang-up here is CRM’s price tag, which is the heftiest of all four of these possibilities. Salesforce has a market cap of $38 billion (and counting).

But maybe someone will take a play out of Zuckerberg’s playbook and spare no expense.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2014/03/tech-stocks-whatsapp-facebook/.

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