Markets reward Facebook for $19bn purchase of WhatsApp

Markets cheered Facebook's $19 billion swoop on social media rival WhatsApp yesterday with the shares trading around 2.3 per cent higher in late afternoon trade.

Analysts said the deal for the messaging service made strategic sense as it will solidify the social network’s position as a leader in mobile.

Facebook shares initially dipped 3 per cent as investors digested the scale of the transaciton but recovered ground as the day wore on to trade comfortably above $69 towards the end of the session.

A number of brokerages downgraded their recommendations on Facebook to “hold” but the overwhelming majority of analysts remain positive on the stock.

Level of engagement
Facebook is paying more than double its annual revenue for a chat program that has little revenue.

The purchase price is slightly more than the market value of Sony but analysts noted that WhatsApp has more than 450 million users and boasts a higher level of engagement than Facebook.

The battle between Facebook and Google to dominate the next phase of digital growth has propelled the value of tech deals done so far this year to $50 billion – a level not seen since the height of the dotcom bubble.

Facebook’s latest move on WhatsApp means the beginning of 2014 has been the busiest start to a year for technology M&A since $78 billion was spent on tech companies in the opening months of 2000, according to data from Dealogic.

Deal frenzy
Mark Zuckerberg, Facebook chief executive, and Larry Page, Google's chief executive, are going head to head in the deal frenzy, using their large cash piles and soaring share prices to make big bets on which fast-growing start-ups will shake up their industry.

"The internet guys are saying the world is my space and I'm going to go after it in an aggressive manner," said Mark Tluszcz, the chief executive at Mangrove Capital Partners, the first investor in communications service Skype. – (Copyright The Financial Times Limited 2014)