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WhatsApp: good value or panic buy?

WhatsApp: good value or panic buy? Dan Brain

This week’s news of Facebook’s intention to pay $19 billion for WhatsApp dominated headlines, rattled analysts and sent the social media giant’s share price on a rollercoaster ride.

Some saw it as a bold move to corner the rapidly growing messaging market, others interpreted it as a paranoid defensive play against Google or a sign of an emerging tech bubble.

But one thing is clear – the deal represents a remarkable start-up success story for the 5 year-old company and its 50 employees.

Is the deal be value for money? Here are the views of three industy experts...

Overvalued – the pressure is on…

  Ivan Fernandes, Founder, Digital Business Partners

“$19 billion for a company with no data or advertising commercial model makes me think the valuation is too high.

The deal will be closely scruitised by stakeholders and despite public claims that WhatsApp will remain advertising free, Facebook is going to be under significant pressure to monetise the service.

How quickly and successfully Facebook can integrate WhatsApp into its user and revenue model will determine whether the deal is successful or not. I expect to see Facebook attempt to generate ad revenue directly or indirectly from the service in the not distant future but I’m fearful that stakeholders won’t allow enough time to see the plan through.  Some Whatsapp users will also react negatively to the Facebook deal or any attempt to commercialise the service.

WhatsApp’s rapid rise and its potential to both offset Facebook’s slowing user growth and dominate the growing message market means that they must have seen enough potential to justify the huge risk. Time will tell whether this is a smart move or a kneejerk defensive play against Google off-the-back of the failed move for Snapchat.

It’s also worth putting this into context. Facebook is prepared to invest 20% of its own value in WhatsApp – this for a young company operating in a competitive space with modest revenues and just 50 employees. The proposed Publicis-Omnicom merger– the largest media consolidation deal of the past 12 months - is valued at $35 billion. Tha's less than double what Facebook will pay for Whatsapp.

The deal may well prove to be a masterstroke for Facebook but it’s difficult not to see it both as an overvaluation and huge risk.”

Possibly... If Whatsapp can stem Facebook's loss of teens

 Tamara Sword, Founder, TRM&C

“Facebook is haemorrhaging teens in mature markets such as the US and UK but they've got the cash to hoover up in the places where those teens have gone.

It's a smart play if, and it's a big if, Facebook can pull together their various acquisitions and create additional value without destroying what attracted those teens in the first place. If Facebook fail, the value for the Whatsapp team is diminished massively.”

Facebook had no choice

 Ian Hutchinson, Director, Kippsy

“Facebook had no choice in the face of the growth of the smartphone messaging, slowing user growth and aggressive moves by competitors like Google. I’m not sure if it will be a game changer but I think it could be a decent deal for Facebook.

It’s worth remembering that only $4 billion is cash. The bulk of the deal comes in stock that won’t vest for years and will undoubtedly have a high bar.

Despite what they say about leaving it as a standalone business, Facebook will integrate fast, using WhatsApp as a user and revenue generating tool.”

Dan is currently Head of Content for for ad::tech London, the iMedia UK Digital Summit and iMediaConnection UK. He is responsible for the content focus of two of the UK's leading digital marketing events and has extensive event production,...

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