Facebook Shares Too Expensive

Following the purchase of Whatsapp analysts have downgraded Facebook to a one star stock meaning it is currently trading at significantly more than its fair book value

Rick Summer, CFA, CPA 6 March, 2014 | 9:11AM
Facebook Twitter LinkedIn

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 $45 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.

The deal's financial merits may eventually materialize. However, in our view, the potential synergies of this acquisition are at best opaque and potentially non-existent. Facebook management has highlighted its intent to maintain WhatsApp as an independent product, with a nod to its Instagram acquisition. Furthermore, we think Facebook is unlikely to introduce advertising into WhatsApp messages, implying no potential increase in its ad revenue or monetization capabilities.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Rick Summer, CFA, CPA  Rick Summer, CFA, CPA, is a senior stock analyst with Morningstar.

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement