WWMZD? Keep Buying, VCs & CEOs Pray

Clearly, what Mark Zuckerberg said before on Facebook’s M&A was just smoke and mirrors: “We don’t plan on doing many more of these, if any at all.”

That was April 9, when Facebook spent about a billion dollars to snap up Instagram and boost its mobile capabilities. The CEO of Facebook, who reportedly didn’t bother to have his board sign off on the transaction, also said the social network probably wouldn’t spend too much more on deals. But just a couple weeks later, Facebook tacked on another half-billion in pre-IPO expenses when it bought patents formerly owned by AOL that had been recently acquired by Microsoft, to bulk up its own portfolio as it prepares for legal battle with Yahoo! Hopefully, Zuckerberg notified his board about that one—or at least about the fact that his deal-zeal is going to delay his IPO.

Facebook admits it wants to get more money out of its mobile users—it just isn’t sure how to monetize that aspect of its business. If e-commerce is the next generation of monetization for Facebook, Zuckerberg might first look at travel and shopping targets to tuck into the social network—the two consumer categories most certain to have broad appeal across several demographics.

Facebook has a great offer for its targets, too. Perhaps one of the most attractive things to Instagram CEO Kevin Systrom was that the majority of his payout from Facebook came in shares, not cash—and the company has plenty of stock to deal with, should Zuckerberg decide the social network needs to grow a little more in the near term. For someone depicted as a shunned sociopath in Facebook’s quasi-fictional screenplay, all of a sudden everybody could be hot to reverse-merge with Mark.

With this advantage, Facebook could easily sashay into fashion and pack its bags for a travel vertical, perhaps even spending less than it has to better engage mobile users and defend itself from outsized patent trolls. Zuck clearly knows his way around a deal negotiation, and he could offer Orbitz shareholders (who have watched the company’s stock drop like a rock since its 2007 IPO) a lowball offer of Facebook shares that would probably leave them smiling from ear-to-ear. Current market cap: less than $400 million. Travelzoo, a similarly-sized travel site with a flagging stock price, recently started seeking bankers for a sale, according to a Reuters report. Airbnb might be a hipper option, but at its valuation—and, with potential legal issues challenging its business model in some jurisdictions—this could prove unwieldy, or at the very least, certainly more expensive than buying a listed competitor from an overcrowded market. Really, Facebook might not need Orbitz’s, Travelzoo’s or Airbnb’s client list as much as it needs their relationships with airlines and hotels as well as ticket data algorithms to build immediate scale, and sales off nearly every page.

While older companies in the online travel booking biz have client rosters, eyeballs and wallets that Facebook and its eventual shareholders covet, it is relative newcomers in e-commerce that the social network could potentially buy. Unlike listed companies in decline, startups LivingSocial and Gilt Groupe have multi-billion dollar valuations. It seems the only thing standing in the way of their trajectory toward public markets is how atrociously Groupon’s stock has performed since its IPO. Undoubtedly, the VCs that poured hundreds of millions into both startups over the last few years would be thrilled to not only guarantee an exit, but Facebook stock to boot. But with travel sites, just as with shopping startups, and just as with engineer recruitment over much of the last decade, Facebook isn’t going to settle for just any B-team on its M&A hunt—expect any deal Zuckerberg strikes to be directed at boosting his social network’s already sky-high rate of user engagement.

Image Credit: Shutterstock.com

Tags: Facebook, Gilt Groupe, LivingSocial