Facebook Inc (NASDAQ:FB)’s $19 billion acquisition of WhatsApp has taken the markets by surprise, but it has also caused some investors to speculate that BlackBerrys BBM might be worth more than previously estimated. People can argue about BBM’s real value until they’re blue in the face (or BlackBerry sells it and we get an actual answer), but WhatsApp’s high sticker price probably has more to do with Facebook’s corporate strategy than a by-the-numbers valuation.
WhatsApp sale implies $42 per user valuation
Jefferies analyst Peter Misek, who rates BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) a Hold with a $9 price target, breaks down the math. At $19 billion, WhatsApp was valued at about $42 per active user, compared to Rakuten’s recent acquisition of Viber for $900 million – about $9 per user. BBM has 40 million active iOS/Android users and another 40 million BlackBerry users. Misek values iOS/Android users at $30 each and BlackBerry users between zero and $10 per user.
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This gives a BBM valuation of between $1.2 billion and $1.6 billion, but if BBM is instead valued at $42 per user across the board, that number jumps to $3.36 billion (and BlackBerry stocks suddenly look undervalued). Misek, who didn’t adjust his BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) price target to account for even the possibility that this might be true, concludes that Facebook paid a hefty premium and leaves it at that.
Facebook is paying for mobile presence
This wouldn’t be the first tech company that sold for more than investors might think is reasonable, but WhatsApp has exactly what Facebook Inc (NASDAQ:FB) needs – a vast mobile presence. As consumers shift usage from PCs to mobile devices, a transition that is already well underway, Facebook has struggled to maintain its relevance. Its Home app was a disappointment, and while lots of Facebook users have downloaded the Facebook app, it’s much less popular than the internet equivalent.
With 450 million active users, up from 400 million two months ago, WhatsApp is one of the most popular messaging apps in the world and this acquisition spikes Facebook’s mobile footprint. At the moment, WhatsApp doesn’t have any ads (it costs $1 per year to use), but you can expect that to eventually change as it becomes integrated into Facebook Inc (NASDAQ:FB). Mobile ad revenue growth has been a weak point for Facebook, and WhatsApp could easily turn that around.
The WhatsApp acquisition fills a very important, specific role for Facebook Inc (NASDAQ:FB) who decided that paying extra to close the deal was fair. Investors shouldn’t assume that BBM will get the same premium if BlackBerry ever decides to sell it.