Market Analysts Applaud Facebook’s $19 Billion Investment in WhatsApp Startup

Market analysts are applauding Facebook Inc.’s recent purchase of the fast-growing messaging startup WhatsApp for $19 billion and assert that this move will solidify the company’s position as a leader in the mobile market. Although the startup has yet to prove itself as a major revenue producer, it does have over 450 million users and actually records a higher level of engagement than the Facebook platform. In addition, WhatsApp has a much stronger showing than Facebook Messenger in global markets across Europe, Latin America, Africa, and Australia, and is attracting users at a time when much of the younger generations are trending toward using Facebook less and the social media giant has fallen behind in mobile messaging phone apps in emerging markets.

While the initial price tag was shocking to many investors (as Facebook is paying more than double its annual revenue for a program that has very little revenue at this point), analysts have broken it down in a way where it makes good financial sense. Given the high number of users boasted by WhatsApp, the price is considered reasonable by most in terms of value per user. In fact, through this deal Facebook is paying $42 per user in a market where the cited value per user is $170 for Facebook and $212 for Twitter according to Deutsche Bank. While WhatsApp’s user base is less than half that of Facebook’s, its chat program’s users are much more active, with 70 percent of users active on a daily bases, compared with 62 percent of Facebook users. In addition, WhatsApp’s user base is expected to reach 1 billion by 2015. Credit Suisse analysts report that they view the deal as an effective way for Facebook to gain an additional share of the consumer’s time spent.

Facebook shares closed on an upswing of 2.3 percent after falling as much as 3 percent immediately following the purchase announcement (due to investor “sticker shock” concerning the magnitude of the deal). Of the 44 analysts who cover Facebook, 37 have a “buy” or “strong buy” rating on the stock.

WhatsApp was founded in 2009 by former Yahoo Inc. employees Jan Koum and Brian Acton.

Reference:

Chatterjee, Soham, and Ahmed, Saqib Iqbal. “Wall Street Sees Sense in Facebook’s $19 Billion WhatsApp Buy.” Yahoo! News. 2/20/14.

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