BMO Capital Markets analysts Tim Long, Alex Spektor and Ari Klein discuss Facebook Inc (NASDAQ:FB)’s purchase of WhatsApp, noting that the transaction has some positive takeaways for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB).
Whatsapp Purchase a Slight Positive, but Some Key Differences
Yesterday, Facebook Inc (NASDAQ:FB) (FB, $68.06, rated Market Perform by Dan Salmon) announced that it would acquire Whatsapp for $19 billion in cash and stock. The transaction seems pricey to us, valuing the privately held messaging company at $42 per active user. On a per user basis, the Whatsapp valuation implies a $3.4 billion valuation for BBM. We see the transaction as a modest positive for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), but do believe the actual value of BBM is a fraction of this amount based on three factors.
Our View:
- •BBM has 80M active users compared with Whatsapp at 450 million. BBM is likely not adding users at nearly the pace of Whatsapp, which is grossing by about one million per day.
- We believe the makeup of the user base is very different. We estimate that more than half of BBM users are using a Blackberry device, where the base is shrinking. Also we believe that about half of BBM users are in emerging markets. Therefore, we believe the Whatsapp user base is much more valuable than the BBM user base.
- Whatsapp also monetizes its messaging app. After one year of service, the company charges $1 per year. BBM has yet to monetize, so translating the user base to a paid model presents risks. Most likely, BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will monetize BBM on enterprise rather than consumers, which again limits the market opportunity.
- We make no changes to our BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) estimates, target, or Market Perform rating at this time.
