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Facebook to Buy WhatsApp for $16 Billion

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Ahead of the Bell: Facebook shares stumble

by loco503    Feb 20, 2014, 10:00 AM

Shares of Facebook slipped Thursday morning after the world's biggest social networking site surprised Wall Street by spending $19 billion on the messaging service WhatsApp.

Analysts that follow the company had mixed feelings on the deal, which Sterne Agee called strategically sound. But Pacific Crest Securities said it would have preferred to see Facebook grow organically, or at least act sooner on such acquisitions to avoid the sticker shock.

WhatsApp is a global messaging service for smartphones. It allows users chat with their phone contacts, both one-on-one and in groups, and well the sending of texts, photos, videos and voice recordings.

Facebook said Wednesday that it's paying $12 billion in stock and $4 billion in cash for the company. In addition, the app's founders and employees will be granted restricted stock worth $3 billion that will vest over four years after the deal closes.

The size of the deal dwarfs acquisitions made by other technology companies, such as Google's $12.5 billion purchase of Motorola Mobility or Microsoft's $8.5 billion acquisition of Skype.

Sterne Agee Arvind Bhatia said that WhatsApp comes with a large and rapidly growing user base that has a higher percentage of daily active users than Facebook.

Pacific Crest's Evan Wilson, however, said that it is hard to justify the valuation of both Facebook and WhatsApp if the social network does face significant competition from mobile messaging services. He noted that the company's acquisition of Instagram, its reported offer for Snapchat and the WhatsApp deal signify that it does.

Shares of Facebook Inc. slipped 2 percent, or $1.38, to $66.68 Thursday about a half hour before markets opened. But the shares are still up more than 20 percent this year.

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