This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Facebook Acquires WhatsApp: What Wall Street Is Saying

NEW YORK ( TheStreet) --  Facebook's (FB - Get Report) decision to spend a massive $19 billion on mobile messaging specialist WhatsApp was greeted with surprise when the deal was announced late on Wednesday. The social network, however, said it sees its Silicon Valley neighbor as crucial to its long-term mobile strategy.

Speaking during an after-market conference call, Facebook CEO Mark Zuckerberg described WhatsApp as a perfect fit. "Our explicit strategy for the next several years is to focus on growing and connecting everyone in the world," he said. "We want to deliver more mobile--- this is where we see a lot more growth."

Facebook shares, which closed up 1.13% at $68.06 on Wednesday, fell on news of the acquisition. The stock was off 1.63% in premarket trading on Thursday.

The deal easily dwarfs the $1 billion Facebook paid to acquire photo sharing app Instagram in 2012, and the Menlo Park, Calif.-based firm faced questions about the $19 billion price tag during the conference call.

Must Read: Facebook Grabs WhatsApp for $16B

Responding to an analyst's question, Facebook Chief Financial Officer David Ebersman cited WhatsApp's "healthy" business. "They are on a path to get to a billion people or more in a short period of time," he said. "The service they provide is extremely useful to people."

Facebook also described the mobile messaging market as being worth $100 billion.

The WhatsApp purchase price comprises $4 billion in cash and approximately $12 billion worth of Facebook shares. The deal also includes an additional $3 billion in restricted stock units to be granted to WhatsApp's founders and employees that will vest over four years following the deal's closing.

The deal is expected to close in 2014.

Here's what Wall Street analysts are saying about the acquisition:

Sterne Agee analyst Arvind Bhatia (Buy, $70 price target)

"We think the acquisition of WhatsApp is strategically sound and will meaningfully strengthen FB's already strong mind share on mobile. While monetization will take time, we think the potential size of the user base and strong engagement on WhatsApp should ultimately lead to meaningful monetization."

"We recognize the acquisition's price tag ($19 billion) will likely cause sticker shock to investors. However, we think WhatsApp's already large user base (450M monthly active users [MAUs]), rapid growth (adding 1M users a day) and strong engagement (70% daily active users or ahead of FB's ~62%) are metrics that are hard to match. While Twitter (TWTR-$55.50-Underperform) and WhatsApp are vastly different platforms, we note that WhatsApp's user base is nearly 2x Twitter and growing at a significantly faster pace. FB believes WhatsApp is on track to reach 1B+ users (up from 450M currently) in the next couple of years. In comparison, TWTR added a mere 9M users last quarter and reached 241M users by year-end 2013. TWTR is currently valued at more than $33B."

Stifel Nicolaus analyst Jordan Rohan (Buy, $72) 

"While the acquisition price seems high, and the valuation is difficult to justify for a company with immaterial revenue, platforms of WhatsApp's scale and growth have significant strategic value. In short, Facebook has with the acquisition of Instagram and WhatsApp muted the strategic risk of Google acquiring its way into social media and communications in a real way. We believe Facebook shares would have been pressured by more than single-digit percentages in after-market trading if Google had purchased WhatsApp instead." 

"WhatsApp CEO Jan Koum, and Mark Zuckerberg share similar long-term strategic visions. Their appears to be a mutual respect and it is worth noting that upon the acquisition closing, Mr. Koum will be joining Facebook's relatively small Board of Directors. This is rather unusual."

Deutsche Bank analyst Ross Sandler (Buy, $75)

"Facebook's acquisition of WhatsApp solidifies its position as the top company in mobile globally (ex-China), with three leading market share apps measured by engagement - core FB, Instagram, & WhatsApp (along with FB Messenger, Paper, etc). The strategic rationale is obvious, mobile messaging apps are in a position to become 'demand generation marketplaces' as many have already demonstrated in APAC, controlling mobile engagement and the purchase funnel."

"The $19B valuation at first glance appears rich, but not if one assigns future revenue/MAU characteristics already in place for other messaging models, and given WhatsApp's arguably unmatched global scale. In summary, we view the acquisition as offensive, and FB continues to demonstrate savvy-ness beyond its years as it pivots its business model, footprint and strategy to mobile."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FB $116.73 0.00%
AAPL $95.03 0.21%
GOOG $691.02 0.00%
TSLA $247.54 -0.07%
YHOO $36.59 0.00%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs