NEW YORK (Reuters) – Facebook Inc’s purchase of fast-growing mobile-messaging startup WhatsApp for $19 billion stunned the markets but analysts said the deal made strategic sense as it will solidify the social network’s position as a leader in mobile.
Facebook shares fell as much as 3 per cent in early trading, erasing $5.2 billion from the company’s market 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 pointed out that WhatsApp currently 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 lots of young users at a time when fears have grown that young people are tuning out of 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.
Facebook is paying $42 per user, compared with a market value per user of $170 for Facebook and $212 for Twitter, Deutsche Bank’s Ross Sandler said in a note.
