At the onset of the Credit Crisis, I went on record as saying that the purchase of Countrywide Financial by Bank of America (BAC) was one of the worst mistakes I had ever seen. I talked about how the deal would come back to haunt the company, and how detrimental it would be to shareholders.
Although I will not go so far as to call the deal struck by Facebook (FB) to buy WhatsApp detrimental in the same capacity as that Countrywide acquisition, I will go on record and call this one of the worst deals I have ever seen as well. From a shareholder's perspective, there is nothing remotely accretive about it.
On the other hand, from Mark Zuckerberg's perspective, he likes gaining more eyeballs, who doesn't, but paying over $30 an eyeball is ridiculous. There is nothing financially responsible about that acquisition, and this will come back to haunt him. I do not think it will happen in the same way as the bad loans Countrywide made came back to haunt Bank of America, but this is right up there with that deal as being one of the worst deals I have ever seen.
In addition, I would go further to describe texting apps to be a relative fad, and younger users will move from them extremely fast if something better comes along. These texting apps may be today's 'thing' but rarely does someone we perceive to be as intelligent as Facebook pay so much for a fad.
I do appreciate the rapid growth of WhatsApp, and apparently, the CEO speaks well over a bottle of wine, but this shines a very bad light on Facebook and it makes many of the recent questions investors have levied more relevant. It also, as some have said, reveals a weakness.
Everything considered, a deal like this would not have deserved a second look if it was priced fairly, because it does have a perceived value. Unfortunately, it also has a short half-live, and this technology will not thrive long enough for Facebook to come close to recouping its investment. A rich valuation would have been about $5 per user, with $3 being a more acceptable number, but Facebook paid about 6-7 times more than they should have, and because the technology can easily be mimicked, even by phone carriers themselves, I see very little possibility of reward from this transaction. Shareholders should consider approximately $17 Billion of that purchase price to be flushed down the toilet.
Now, after I have exhausted my opinion, let's get to what really matters. What matters to investors is price, so after all of this jargon, we need to take a look at the stock. According to our real time trading report for Facebook, the stock has come close to longer-term resistance recently but has not tested longer-term resistance officially. It is essentially in the middle of a longer-term up-channel (after the run that began last year), and that provides no trading catalysts. Facebook is not a buy, sell, short, or hold. According to our report, until such time as Facebook tests longer-term support or resistance again, it is an absolute avoid.