Tomahawk, WI 02/20/2014 (BasicsMedia) –  No other piece of business announcement has taken the world by storm as the fact that Facebook Inc (NASDAQ:FB) intends to make WhatsApp Inc its latest acquisition. What is even more intriguing is the news that Facebook will pay between $16 billion and $19 billion to make WhatsApp Inc its latest acquisition. The question being bandied around is whether Facebook is truly justified to value WhatsApp at such a high value. Normally, companies that produce life saving medication receive such astronomical valuation. Therefore, what has Facebook Inc seen in WhatsApp Inc to a point of valuating it at roughly $19 billion?

According to Wall Street, it is possible that Facebook Inc (NASDAQ:FB) has peaked. When companies peak, it means that they cannot produce any more fresh ideas that have a commercial impact. When such a scenario arises, such companies are left with no choice other than to make new acquisitions. In essence, what such companies are doing is called buying growth. Therefore, in a way, it seems that Facebook might have reached a stage where it believes that it cannot sponsor any fresh growth internally, and has to look outside to make this possible. If that is the case, then there is nothing wrong with it, and the market seems to be responding extremely well to this stock.

Facebook Inc (NASDAQ:FB) currently boasts of 1.23 billion active users. On the other hand, WhatsApp Inc has roughly 1 billion subscribers. Therefore, by acquiring WhatsApp, Facebook is essentially stating that it values itself roughly at the same amount. Of course, the real valuation of Facebook is more than $90 billion, which emerged prior to its IPO in 2012. WhatsApp is a mobile application with estimated sales of around $1 billion. Now, Facebook seems to be ready and willing to pay 19 times more than what the company makes in sales, to make it the latest acquisition. It is possible that Facebook has plans with WhatsApp that nobody outside the two companies knows.

Facebook Inc (NASDAQ:FB) faces a tough challenge. How it deals with this challenge will determine its long-term success. A good number of young active users are opting out of Facebook, the world’s largest social media platform. Facebook hopes that by acquiring WhatsApp, it has found a way of retaining the interest of its much younger active users, and stopping the drain. By doing this, Facebook hopes to generate more growth than it is currently doing. With WhatsApp being a predominantly mobile application, Facebook has just given investors an indication that this is where it believes the future lies. Facebook is betting big on its future on the mobile platform.

In summary, Facebook Inc (NASDAQ:FB) is justified to buy WhatsApp Inc at roughly $19 billion. Facebook needs everything it can get to build up its stock in the mobile world. Buying WhatsApp for $19 billion may seem a bit steep, bearing in mind that other giants in the tech world, such as Google Inc, have not fared well with some of their acquisitions, such as that of Motorola. Google Inc (NASDAQ:GOOG) bought Motorola for around $13 billion, only to sell it for less than $3 billion. Will Facebook Inc face a similar outcome? That remains to be seen.

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