BlackBerry shares set to jump on Facebook's WhatsApp bid

TORONTO Thu Feb 20, 2014 9:26am EST

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TORONTO Feb 20 (Reuters) - Facebook Inc's $19 billion bid for fast-growing mobile-messaging startup WhatsApp sent shares of BlackBerry Ltd higher before the opening bell on Thursday as investors placed bets that the smartphone maker's own messaging platform has been undervalued.

BlackBerry shares were up as much as 9 percent in trading after the bell on Wednesday as the deal boosts valuation metrics around the company's own BlackBerry Messaging service.

BlackBerry Messaging, or BBM, was a pioneering mobile-messaging service, but its user base has failed to keep pace with that of WhatsApp and other upstarts, in part because BlackBerry had long refused to open the service to users on other platforms.

WhatsApp, with a user base of about 450 million, has grown rapidly. Its service works on Apple Inc's iOS platform, Google Inc's market-dominating Android operating system and with devices powered by both the Windows and BlackBerry operating systems.

BBM remains popular, even though BlackBerry devices have waned in popularity. Late last year, the Waterloo, Ontario-based company finally opened the messaging platform to users of iPhones and Android devices, and the number of the service's active users has grown to more than 80 million.

However, investors have attributed little value to the asset within the company. In a note to clients on Tuesday, Raymond James analyst Steven Li broke out a sum-of-parts valuation of BlackBerry and pegged the value of BBM at merely $240 million, or $3 per user.

Facebook's valuation of WhatsApp translates into roughly $42 per user, and that could lead investors and analysts to rethink their valuation of the asset within BlackBerry.

BlackBerry has given no indication of interest in selling the asset. While there has been some speculation that the company might try to carve out the unit, or even sell it, new Chief Executive John Chen has so far hinted that BBM remains a core asset.

Wells Fargo analyst Maynard Um said the Facebook-WhatsApp deal presents potential upside to his own valuation of BBM.

"However, unless management plans to sell the unit, it is, in our opinion, difficult to add the incremental value given the unit is likely loss-making and will require investments," Um said in a note to clients on Thursday.

After rising as high as $9.82 in post-market trading on Wednesday, shares of BlackBerry settled at around $9.54, well above the close of $9.01. The stock was up about 5.5 percent at $9.51 in trading before the morning bell on Thursday.

Facebook's acquisition prompted TD Securities analyst Scott Penner to boost his own valuation on BBM to $800 million, or $10 per user, from $400 million, or $5 per user.

"Engagement metrics of BBM stack up well with WhatsApp," Penner said in a note to clients. "And this deal does highlight the value of messaging platforms." (Editing by Lisa Von Ahn)

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