Skip to Content
Market Update

Facebook Likes WhatsApp, but Should Shareholders?

The $19 billion cash/stock acquisition gives Facebook an entirely new revenue stream, but a lot has to go right in order to justify this deal's valuation, says Morningstar's Rick Summer.


In a bold and aggressive move,  Facebook (FB) has agreed to purchase WhatsApp, a global messaging company, for approximately $19 billion, including $4 billion in cash, 184 million shares of Facebook stock, and 46 million restricted stock units for employees of WhatsApp. Based on our fair value estimate, the size of the deal is roughly 13% of Facebook's enterprise value. The deal is expected to close in late 2014.

We are sticking with our fair value estimate for Facebook, and we maintain our wide economic moat rating. We still consider Facebook's shares to be overvalued, and we recommend investors to wait for a meaningful pullback in the stock price before allocating new capital to this name.

Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.