Facebook owner Meta Platforms (FB) has been ordered by the UK competition authority to offload Giphy, a platform for animated images. Reuters reports that the Competition and Markets Authority (CMA) believes a merger of the two will reduce competition in the social media space by allowing Facebook to add to its significant market power. FB shares fell 4.01% to close at $324.46 on November 30.
Facebook is a social networking company that develops applications that enable people to connect through mobile devices and personal computers.
Facebook – Giphy Stalemate
The competition watchdog has also warned that Facebook’s acquisition of Giphy reduces competition in the display advertising segment. Facebook acquired Giphy in 2020 for about $400 million, as it sought to integrate its operations with its photo-sharing app, Instagram. Giphy has made a name for itself by offering a platform for making and sharing animated images of GIFs. (See Top Smart Score Stocks on TipRanks)
Stuart McIntosh, the chair of the independent investigation on Facebook-Giphy for the CMA, insists that the business combination reduces a significant challenger in the display advertising market. Consequently, pushing Facebook to divest Giphy will go a long way in protecting millions of social media users, according to the investigation. Facebook offloading the unit is also expected to promote competition and innovation in the display advertising space.
Reuters reports that Facebook disagrees with the decisions and plans to appeal the CMA’s decision. This is not the first time the social networking giant has found itself at a crossroads with the CMA. In October, the company was hit with a $70 million fine for breaching an order pertaining to the Giphy acquisition.
Stock Rating
In October, Bank of America Securities analyst Justin Post reiterated a Buy rating on the stock with a $400 price target, implying 10% upside potential to current levels. According to the analyst, Facebook rebranding to Meta is a step in the right direction, as it affirms the importance of the company’s non-Facebook apps, such as Instagram and WhatsApp.
Consensus among analysts is a Strong Buy, based on 29 Buys, 5 Holds, and 1 Sell. The average Meta price target of $406.31 implies 25.23% upside potential to current levels.
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