Facebook's purchase of fast-growing mobile-messaging startup WhatsApp for $19 billion U.S. at first 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 2.2% in early trading to $66.58 U.S., erasing $5.2 billion U.S. 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.
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 U.S. per user, compared with a market value per user of $170 U.S. for Facebook and $212 U.S. for Twitter, according to one expert.
WhatsApp's 450 million users are well short of Facebook's 1.2 billion but WhatsApp users are more active. On any given day, 70% of WhatsApp users are active, compared with 62% for Facebook.
Tech Insider
