Meta Sells Giphy At Huge Loss After CMA Order

Facebook parent Meta Platforms has taken a massive financial hit, after selling gif search engine Giphy on orders from the United Kingdom.

Last October the UK’s Competition Markets Authority (CMA) had ordered Meta to divest itself of Giphy – the first time that British regulator had blocked an acquisition by a Silicon Valley tech giant.

After the UK refusal Meta sold Giphy for just $53m (£46m) in cash to stock image service Shutterstock, in order to expand “Shutterstock’s content library to include GIFs and stickers used in more casual conversations.”

Big loss

In the press release announcing the sale, Shutterstock’ revealed that Meta Platforms was also “entering into an API agreement to ensure continued access to Giphy’s content across Meta’s platform.”

The transaction is expected to close in June 2023, subject to customary closing conditions.

“This is an exciting next step in Shutterstock’s journey as an end-to-end creative platform,” said Shutterstock CEO Paul Hennessy. “Shutterstock is in the business of helping people and brands tell their stories. Through the Giphy acquisition, we are extending our audience touch points beyond primarily professional marketing and advertising use cases and expanding into casual conversations.”

“Giphy enables everyday users to express themselves in memorable ways with GIF and sticker content while also enabling brands to be a part of these casual conversations,” said Hennessy. “We plan to leverage Shutterstock’s unique capabilities in content and metadata monetisation, generative AI, studio production and creative automation to enable the commercialization of our GIF library as we roll this offering out to customers.”

Meta is should be remembered had announced it was acquiring Giphy in May 2020 (and closed the deal in November 2021). It promised at the time it would grant third parties the same level of access to Giphy’s content as before.

Meta had paid roughly $315m to acquire Giphy, but now the $53m sale to Shutterstock means that Mark Zuckerberg’s firm has taken a more than $260m (£210m) loss on Giphy.

Meta’s $315m acquisition of Giphy was already a substantial discount from the company’s peak valuation of about $600m back in 2016.

UK intervention

The sale was inevitable after Meta last year accepted the CMA decision as the final word on the matter, and said it would sell off Giphy, settling a dispute that saw both sides remain at loggerheads for nearly two years.

Both Meta and Giphy were headquartered in the United States, but in June 2020 the UK’s competition authority (CMA) got involved in the acquisition, because it said that Giphy did business in the United Kingdom.

The CMA examined whether the $400 million (£317m) deal “resulted or may be expected to result in a substantial lessening of competition in any market or markets in the United Kingdom”.

The CMA began its initial investigation in January 2021, and in April 2021 the CMA said it would deepen its investigation of the takeover of Giphy, which prior to its acquisition, was headquartered in New York and Los Angeles.

The deal had raised British competition concerns because Giphy is widely used on social media, and while Facebook said half of Giphy’s traffic originates from Facebook apps, such as Instagram and WhatsApp, Giphy also provides images to others including Snapchat, TikTok and Twitter.

Facebook had also previously said it plans to integrate Giphy into its Instagram photo app, potentially giving it access to large amounts of data.

This raised regulatory concerns about Facebook’s existing market power in display advertising.

Matters became more worrying for Mark Zuckerberg in August 2021, when the CMA “provisionally found Facebook’s merger with Giphy would harm competition between social media platforms and remove a potential challenger in the display advertising market.”

Meta objected strongly and in September 2021 it told the British competition regulator that it had no authority to intervene on the matter, as Giphy was “a US company with commercial activities strictly limited to the US.”

Following that, the CMA fined Facebook £50.5 million ($69.6 million) for ‘deliberately’ breaching a compliance disclosure order imposed during its investigation into its purchase of Giphy.

Then in November 2021 after concluding its investigation, the CMA ordered Facebook to sell-off Giphy after it decided the remedies offered by the American company did not answer its concerns.

In December 2021 Meta confirmed it was appealing the CMA decision, saying the evidence did not support the CMA finding that the deal was a threat to its rivals or could impact competition in display advertising.

In 2022 the CMA reassessed its original order for Meta to sell Giphy, but came to the same conclusion that Meta could not retain ownership of the firm.