Facebook-WhatsApp: An expensive 'natural buy'?

Facebook overnight announced it would purchase ubiquitous messaging service WhatsApp.

The scale of the union can be judged when one looks at the numbers: Facebook has about 1.23 billion users – or one in every six individuals in the world -- while WhatsApp has 450 million users.

When Facebook declared last year it had about 128 million users log on to its network every day, the number was seen as breath-taking and setting an industry standard. As confirmed by the social media firm’s chairman Mark Zuckerberg yesterday, WhatsApp, with 70 percent of its users being active daily, beats Facebook hollow when it comes to engagement.

Terming WhatsApp’s acquisition as a “natural buy”, Atul Hegde, CEO, Ignitee Digital Services, says with photo-sharing service Instagram, that it bought last year for USD 1 billion, and now WhatsApp, one could see further acquisitions in what would now be Facebook’s “mobile-first” approach.

It makes sense given the fact that Facebook has in the past been criticized by analysts over the perceived slowness in its mobile strategy. But given the increased thrust on mobile, Facebook’s latest revenues and growth in the user-base was driven by mobile users, points out Hegde.

But even as the deal met with a near-unanimous thumbs-up for the possibilities it can serve up for the social media giant, the acquisition, at USD 19 billion including restricted stock, has thrown up questions over whether Facebook overpaid. WhatsApp’s valuation is now higher than the likes of SouthWest Airlines, Harley Davidson, Mariott International, News Corp and the Blackstone Group.

Also read:OMG! Only 14 listed Indian cos valued higher than WhatsApp

Consider this: Google had last year reportedly offered to pay USD 1 billion for the company, an offer that was spurned.

“The price [that Facebook paid] is exorbitant,” says Vishal Tripathi, Analyst at IT research firm Gartner.

At USD 1-a-user, no-ads business model, WhatsApp can only make up to USD 450 million in yearly revenues. But revenues aren’t the only thing Facebook is after.

“But WhatsApp dominates the mobile messaging service. The app is a vehicle for Facebook to get its massive customer base along with the infrastructure,” Tripathi says.

“You have an enormous number of people logged on on WhatsApp,” former Infosys executive and chairman of the Manipal Group TV Mohandas Pai says. “You can add on many more things to make it much more useful and add it to Facebook so that you have WhatsApp and Facebook coming together on a very large global footprint.”

Pai says Zuckerberg is looking at the future. “It may look expensive and we have to wait and see whether it works. But I think he has taken a great bet and it will work -- looking at the growth on WhatsApp. It is extremely unique, low cost and seems to have been a hit with the global audience.”