In One Chart: Key Reason Facebook Is Blowing $19 Billion On WhatsApp

Posted: Feb 19 2014, 5:31pm CST | by , Updated: Feb 19 2014, 9:26pm CST, in Technology News


This story may contain affiliate links.

In One Chart: Key Reason Facebook Is Blowing $19 Billion On WhatsApp

Even in this era of multibillion-dollar valuations for tech startups that have barely moved out of the founders’ parents’ basement, the $19 billion Facebook is paying for the mobile messaging service WhatsApp seems simply insane.

But that’s what Facebook likely will be spending to acquire the latest–well, not even actually the latest–social network and communications service. The company today announced the deal, which includes $12 billion in Facebook stock, $4 billion in cash, and up to $3 billion in restricted Facebook stock units to be granted to WhatsApp founders and employees over a four-year vesting period.

Why so much for a service that a lot of people have never even heard of? Because it’s growing really, really fast–faster, in fact, than just about any similar service to date, including Facebook. More than 450 million people are using the service monthly, and 70% of them are active on any given day, according to Facebook’s press release. More than 1 million more are registering to use it every day.

Most stunning, WhatsApp messaging volume is apparently approaching the entire worldwide SMS messaging volume of mobile carriers. That’s the kind of growth Facebook, whose own messaging service has been growing rapidly but nothing like that, simply can’t ignore.

Still–$19 billion? Really? Some people thought Facebook CEO Mark Zuckerberg was crazy to offer $3 billion a few months ago for Snapchat, which has even more buzz than WhatsApp especially among the young people the No. 1 social network seems to be losing.

It’s difficult to put a price on remaining relevant or even surviving long-term, so perhaps $19 billion isn’t that big a sum to pay. And after all, it’s mostly stock–funny money in a sense. So why not spend it on ensuring a future for your company?

But no, I can’t say that with a straight face. It’s just too hard to justify it on any kind of near-term factors. Despite Facebook’s waning cool factor, the company doesn’t seem to be in significant danger. It’s one of the most profitable companies in the world at least measured by profit margin.

We’ll hear more shortly on a conference call starting at 3 p.m. Pacific that I’ll highlight below. Here’s what Zuckerberg had to say:

Our goal is to connect everyone in the world. To do that, the company has invested in a lot of mobile experiences. We want to develop new mobile experiences beyond the Facebook app.

WhatsApp doesn’t get as much attention in the U.S. because it got the most attention outside the U.S. It’s the only widely used app that has more engagement than Facebook, he said.

He also cited the successful subscription model it has. Simple, fast, reliable–it’s a great model for our own mobile experiences, he said.

Our chat is mostly used to communicate with Facebook friends, and not necessarily in real time, he noted, so WhatsApp is complementary.

WhatsApp cofounder and CEO Jan Koum said his goal was to provide a service that could be used easily by anyone, no matter what platform. Some 19 billion messages a day are sent using WhatsApp. (OK, so $1 for each message sent today–that’s what Facebook’s paying.)

Anyway, Facebook helpfully provided the following chart to explain (if not excuse) why it’s willing to part with multiples of its annual sales on a company with 55 employees:

Source: Forbes

This story may contain affiliate links.


Find rare products online! Get the free Tracker App now.

Download the free Tracker app now to get in-stock alerts on Pomsies, Oculus Go, SNES Classic and more.

Latest News


The Author

Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.




comments powered by Disqus