There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.
Netflix Makes a Deal with Comcast
Netflix (NFLX) has inked an important multiyear interconnection agreement with Comcast (CMCSA). The deal gives Netflix more direct access to Comcast’s broadband network. In return, Netflix will pay a larger amount for its increased traffic on the Comcast network. This is important because it ensures a good viewing experience for Netflix’s domestic streaming subscribers that use Comcast.
In recent months, Netflix has fielded complaints from some domestic streaming subscribers regarding long load times and subpar viewing quality of movies and television programs. This has been largely the result of greater Internet traffic, due at least partly to streaming demand from Netflix’s own customers. The agreement with Comcast looks to be a good way to address this issue, and likely lays the groundwork for Netflix to pursue similar deals with other broadband providers.
Facebook to Acquire WhatsApp
Facebook (FB) has agreed to acquire mobile messaging app developer WhatsApp. Facebook will pay $16 billion in stock and cash, plus $3 billion in restricted stock units over the next four years. WhatsApp allows users to send free text messages over the Internet. This acquisition ought to allow Facebook to expand its reach into messaging and advertising on mobile devices, and also to bring a potential competitor into its fold.
Some in the financial community appear worried that Facebook is overpaying for WhatsApp. These are valid concerns, in our view. It remains to be seen whether user growth at WhatsApp in the coming years will justify the price Facebook has paid to acquire it. Even so, the mobile arena is an area on which Facebook must focus. Growth in mobile advertising ought to remain an important performance driver for the company going forward. This market is becoming increasingly relevant, as more people choose to access the Internet from mobile devices.
The Growing Smartwatch Space
Samsung has announced it will introduce three more smartwatches. This follows the release of its first smartwatch, the Galaxy Gear, last September. Samsung recently unveiled the three new watches at the Mobile World Congress in Barcelona. These watches can run applications and can wirelessly connect with smartphones. They include the Gear 2 (which has a built in camera), the Gear 2 Neo, and the Gear Fit (which has a curved screen and appears to be targeting health markets). Meanwhile, Motorola Mobility and LG Electronics also appear to have plans to introduce a smartwatch. Last but certainly not least, Apple’s (AAPL) rumored iWatch is expected by some industry observers to be released in the near future. Assuming this comes to fruition, it would probably have a number of rivals when it arrives. Its fair to say that only time will tell how the battle for smartwatch supremacy will play out.
Bitcoin Exchange Files for Bankruptcy
The Mt. Gox Bitcoin Exchange has filed for bankruptcy protection in Japan. The exchange has stated that it may have lost up to half a billion dollars of the virtual coins (based on the recent Bitcoin price) to hackers who apparently exploited a weakness in its computer system. This had led to concerns that users of the exchange will not be able to recover their funds. Litigation has already commenced.
Bitcoin participants have emphasized that the problems are specific to the Mt. Gox exchange. Even so, this news comes as a blow to the volatile virtual currency. Bitcoin prices had advanced dramatically in late 2013 to over $1000 per unit, but have given up much of those gains in recent months and now trade around $625 per unit.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.