Wall Street sees sense in Facebook's $19 billion WhatsApp buy

Thu Feb 20, 2014 4:39pm EST
 
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By Soham Chatterjee and Saqib Iqbal Ahmed

(Reuters) - Facebook Inc's purchase of fast-growing messaging startup WhatsApp for an eye-popping $19 billion largely won approval from analysts, who said the deal made strategic sense as it will solidify the social network's position as a leader in mobile.

Facebook shares closed up 2.3 percent at $69.63 after falling as much as 3 percent in early trading as investors got over the initial sticker shock of the deal value.

At least two brokerages downgraded their recommendations on Facebook to "hold" but the overwhelming majority of analysts remain positive on the stock.

Facebook is paying more than double its annual revenue for a chat program that has little revenue. The purchase price is slightly more than the market value of Sony Corp.

But analysts noted that WhatsApp has over 450 million users and boasts a higher level of engagement than Facebook.

"Facebook is the leading global social-sharing utility. Now, it has a significant opportunity to be the leading global communications utility," RBC Capital Markets said in a note.

WhatsApp is much stronger than Facebook Messenger in Europe, Latin America, Africa and Australia and has attracted users at a time when it appears that young people are turning away from Facebook.

Analysts said the price tag for WhatsApp, founded in 2009 by former Yahoo Inc employees Jan Koum and Brian Acton, seemed reasonable from the point of view of value per user.   Continued...

 
A Whatsapp icon is seen on a Samsung Galaxy S4 phone screen with a Facebook logo in the central Bosnian town of Zenica, February 20, 2014. REUTERS/Dado Ruvic