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's WhatsApp Deal Now Worth $2 Billion Less

NEW YORK (TheStreet) -- Remember when Facebook (FB - Get Report) bought WhatsApp for $19 billion? As of Monday, Facebook really only paid $17 billion for the messaging company.

The reason: Facebook paid mostly in stock for WhatsApp. Of the $19 billion purchase price paid back in February when the deal was announced, $15 billion of it was using Facebook stock that -- at the time -- was trading north of $65 a share.

The stock went up after that for a while but has come down significantly in the last month to current levels in the $56 range.

So the purchase price has gone down from $19 billion to a current level of $17 billion using Monday's stock price. It's still not a bad price, but it does have some big implications.

At the time the deal was announced, many pointed to Facebook valuing each WhatsApp user at $42. That per user price is down to $37 with the reduction in the total purchase price. This, then, has an effect on the potential value of other messaging apps like Line -- which is rumored to be going public later this year -- as well as private services like Kik and public services like BBM, which is owned by BlackBerry (BBRY).

In the case of BlackBerry, it recently announced during the earnings call that it has 85 million monthly active users (or MAUs). At $37.77 per user (with the current implied WhatsApp valuation), that comes out at a whopping $3.2 billion that BBM is potentially worth. All of BlackBerry has a market cap currently of $4.2 billion.

Facebook has a long history of paying with stock for big acquisitions. Just prior to its initial public offering a couple of years ago, they bought Instagram for $1 billion. Then Facebook's stock dropped after the IPO and many people liked to point out that Instagram was only worth $700 million due to the component in stock they took. Yet, at today's Facebook valuation, that deal actually valued Instagram at $1.6 billion because a majority of it was paid for in stock.

So, even though WhatsApp's implied valuation has dropped along with Facebook's stock price, what the deal is truly worth to Jan Koum will only truly be known in a few years from now.

Facebook looks like a genius now for buying Instagram two years ago -- even at $1.6 billion. Later this year it's expected that -- with current growth trends -- Instagram will surpass Twitter in terms of users. Twitter (TWTR) is currently sporting a $26 billion valuation. How much has Instagram's success supported the stock price of Facebook in the last couple of years? At the end of the day, Facebook only had to spend $300 million of its pre-IPO cash on the deal.

The WhatsApp deal -- or the more recent Oculus deal -- offer a similar upside for CEO Mark Zuckerberg. If it's a bust, he's only given up stock and not cash. If it works out, as it did with Instagram, he's paid very little in cash to make it happen.

At the time of publication the author is long BBRY.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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 $249.50 0.72%
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