Financial experts are scrambling to make sense of one of the largest buys of a venture-backed startup in history after Facebook announced Wednesday that it was purchasing WhatsApp for $16 billion, plus an additional $3 billion in stock grants.
The $19 billion deal value -- or around 10 percent of Facebook's total market value -- might seem fair when considering WhatsApp's extremely active user base of 450 million people and its potential to help Facebook infiltrate emerging markets. Case in point, Facebook paid about $42 per active WhatsApp user. Meanwhile, the social network's own active audience members are worth about $140 each.
But fair and wise are two totally separate things.
Yet, when it comes to WhatsApp, Internet analysts seem cautiously open-minded, willing to give Facebook time to prove out its plan, though they're still digesting the price. Some are even tossing around the word "defensive," which can be loosely translated as "desperate," in describing the social network's messaging maneuver.
"The $19 billion purchase price for such a young company without a fully developed business model is without precedent," said Martin Garner, senior vice president at telecommunications analyst firm CCS Insight. "The purchase price has undoubtedly been heavily influenced by Facebook's defensive mindset and a desire to ensure WhatsApp didn't fall into the hands of a competitor."
Garner and many others, such as firm Sterne Agee, however, recognize that WhatsApp, which offers people around the world a cheaper version of SMS, is a threat to operators. "We think the acquisition of WhatsApp is strategically sound and will meaningfully strengthen Facebook's already strong mind share on mobile," Internet analysts at Sterne Agee wrote in their latest report.
The prevailing logic seems to be around Facebook gobbling up the global mobile messaging market, currently estimated to be a more than $100 billion market. Facebook now has in its possession one of the most promising assets, as WhatsApp's messaging volume is already nearly on par with the global SMS telecom volume.
"Now, [Facebook] has a significant opportunity to be the leading global communications utility," analysts at RBC Capital Markets concluded in their report.
Even Richard Greenfield, the BTIG analyst who hasn't been particularly bullish about the social network's propositions, sees the silver lining of the WhatsApp deal. "Facebook notably increasing its already dominant share of mobile device time spent appears to be a logical decision that will bear fruit long-term, even if the ROI path is far from clear today," Greenfield wrote.
This wait-and-see optimism was echoed by Macquarie Equities Research, though the firm did balk at the price of the deal. "The $19 billion price tag is an unfathomable price based on any near-term multiple," Macquarie Equities Research analysts wrote in their latest report. "However, given Facebook's long-term plan for WhatsApp, we won't know for some time if the price paid actually looks more reasonable."
But, perhaps, the best proxy for why the deal makes dollars and sense is Google's acquisition of YouTube in 2006.
"Whereas YouTube was potentially disruptive to the global video ecosystem, WhatsApp could disrupt the global paid messaging industry," Jefferies' US Internet team said in its report.