Did Facebook overpay for WhatsApp? Analysts weigh in

Facebook today announced that it will buy mobile-messaging app WhatsApp for $19 billion in cash and stock. This is one of the biggest tech deals in history. To put numbers in perspective, Facebook is shelling out more for WhatsApp than Google did for Motorola Mobility and Microsoft did for Nokia’s mobile and business service unit.   Facebook says that the deal makes sense given the kind of phenomenal growth that WhatsApp has seen and the fact that it is growing faster than Facebook, Twitter, Gmail and Skype. It also makes sense given the fact that Facebook has been taking mobile growth very seriously in the last two years.   But did Facebook overpay for a product that doesn’t use any ads? Here’s what analysts have to say on the deal.   London-based mobile analyst Benedict Evans says the deal shows the continued determination of Facebook to be the ’next’ Facebook. “It’s striking to compare the aggressive reaction to disruption shown by Google, Facebook and other leading web companies today with how some of their predecessors a decade ago stumbled and lost their way,” writes Evans on his blog.   Robert Pavlik, chief market strategist at Banyan Partners told CNBC, that he sees the deal as a positive step. “You are probably going to see people question the deal, and put pressure on Facebook shares but the fact of the matter is Facebook is really trying and succeeding in some regard to monetizing their business. This is another step in that direction,” he said.   But some feel that this is just sheer desperation. “This is crazy money. I think they massively overpaid for this, they’ve done it because they are desperate,” Rob Enderle, principal analyst at Enderle Group told CNBC.  David Williams, CEO of Williams Capital Advisors also views the deal as a defensive act. “It’s a high price, but they had to do it, or someone else would have,” he added.   Greg Sterling at Opus Research feels that the high price is a result of not being able to buy Snapchat and is a big risk for the company. He says, “The size of this deal is really massive and it will get people talking about a bubble. [It is a risk for Facebook because] in social media you have a flavour of the month, and next year we might have another app with extremely rapid growth. I think [the high price tag] comes from the frustration of not being able to buy Snapchat, and then there is the youth factor. Facebook really needs to have vehicles to attract younger users, and Instagram is not going to do that by itself.”