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Facebook Might Build 11,000 Drones … But Why?

Facebook (FB) is reportedly in negotiations to acquire drone manufacturer Titan Aerospace for $60 million, according to TechCrunch.

fb-stock-facebook-investingAnd because FB stock isn’t likely to budge on this small-scale purchase outside of the core ad business, many investors in Facebook might be scratching their heads and wondering, “What’s the point?”

Simple: The social media giant wants to use high-altitude drones to provide Internet connections to isolated communities around the world.

Part of this is a design at bringing its ubiquitous Facebook platform to even remote regions of the world … but there’s also some altruism here as part of the internet.org project that aims to bring affordable web access to everyone. FB and its CEO Mark Zuckerberg are major backers of the initiative.

FB Stock Unaffected by Drone Purchase … For Now

Let’s be honest: The recent purchase of WhatsApp for $19 billion shows that FB stock has much bigger issues than plunking down a mere $60 million on a pet project. Facebook investors are eager to see how the previous $1 billion acquisition of Instagram pays off, how Facebook will integrate WhatsApp going forward and whether the company can continue to fight upstream in a market of declining web advertising rates.

But long-term, the plan to buy Titan and use it to deploy as many 11,000 high-altitude, autonomous aircraft that can effectively operate as cheap satellites is an ambitious project — it’s one that could cost some serious capital, but if it pays off, it actually could have a real effect on FB stock.

Consider the market saturation that FB faces in the West, with users in Europe and the U.S. flatlining. Facebook must to tap into global markets if wants to keep growing, but is limited by infrastructure in many regions of Asia and Africa … and this drone project is a practical end-around.

FB Not the First

It might sound crazy, but this kind of scheme isn’t the first of its kind. Fellow Silicon Valley giant Google (GOOG) has a plan to do the same thing, only via stratospheric balloons — an Internet initiative dubbed Project Loon.

And while Amazon (AMZN) isn’t yet scheming on Internet access, it certainly is planning on using drones to increase its e-commerce and delivery capabilities, as we learned in a high-profile interview with Jeff Bezos on 60 Minutes last December.

Admittedly, there are many practical barriers to these pie-in-the-sky plans, including a patchwork system of regulations and oversights that was recently highlighted by Congressional hearings on commercial drone use. Whether it’s practical operations, privacy concerns or liability issues, there are a lot of hangups that need to be worked out before any of this becomes reality.

But FB, Amazon and Google are already moving in this direction — and companies including Textron (TXT), Lockheed Martin (LMT) and others are eager to open up new opportunities for their unmanned aircraft.

There undoubtedly is money to be made in this space eventually, and if Facebook is toying with getting in on this high-tech area, that could mean it has a big role to play in this emerging market.

Even if on the surface this Titan acquisition is being billed as community service to poor folks without Internet access … the long-term potential could be very real for FB stock.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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