Facebook to fork out $19bn for WhatsApp
The deal is by far Facebook’s largest, and outstrips any that Google, Microsoft, or Apple have ever done. However, it is likely to raise worries that Facebook and other technology firms are starting to become overzealous in their pursuit of promising new products and services, said Anthony Michael Sabino, a St John’s University business professor.
“This could be seen as a microcosm of a bubble,” said Mr Sabino. “I expect there to be a lot of scepticism about this deal. People are going to look at this and say, ‘Uh-oh, did they pay way too much for this?”
Facebook, for its part, is taking the long view.
WhatsApp has 450m monthly users, 70% of whom use it every day. The service is adding a million new users a day.
There are 19bn messages sent and 34bn received via WhatsApp each day, in addition to 600m photos and 100m video messages.
At this rate, Facebook CEO Mark Zuckerberg is confident the app will reach a billion users. Services that reach that milestone, he said in a statement, “are all incredibly valuable”.
It is an elite group to be sure — one that includes Google (which owns YouTube), Facebook itself, and little else.
Facebook said it is paying $12bn in stock and $4bn in cash for WhatsApp. In addition, the app’s founders and employees — 55 in all — will be granted restricted stock worth $3bn that will vest over four years after the deal closes. The transaction translates to roughly 11% of Facebook’s market value.
In comparison, Google’s biggest deal was its $12.5bn purchase of Motorola Mobility, while Microsoft’s largest was Skype at $8.5bn. Apple, meanwhile, has never done a deal above $1bn.
The deal stunned Gartner analyst Brian Blau. “I am not surprised they went after WhatsApp, but the amount is staggering,” he said.
The world’s biggest social networking company likely values WhatsApp for its audience of teenagers and young adults, who are increasingly using the service to engage in online conversations outside of Facebook, which has evolved into a more mainstream hangout inhabited by their parents, grandparents, and even their bosses.
WhatsApp also has a broad global audience.
Zuckerberg said the service “doesn’t get as much attention in the US as it deserves because its community started off growing in Europe, India, and Latin America. But WhatsApp is a very important and valuable worldwide communication network. In fact, WhatsApp is the only widely used app we’ve ever seen that has more engagement and a higher percent of people using it daily than Facebook itself.”
In that regard, the acquisition makes sense for the 10-year-old Facebook as it looks to attract its next billion users while keeping its existing 1.23bn members interested. The company is developing a “multi-app” strategy, creating its own applications that exist outside of Facebook and acquiring others. It released a news reader app called Paper earlier this month, and has its own messaging app called Facebook Messenger.
“Facebook seems to be in acknowledgement that people are using a lot of different apps to communicate,” said eMarketer analyst Debra Aho Williamson.
“In order to continue to reach audiences, younger in particular, it needs to have a broader strategy...not put all its eggs in one basket.”
Facebook said it is keeping WhatsApp as a separate service, just as it did with Instagram, which it bought for about $715.3m nearly two years ago. At $19bn, Facebook is paying $42 per WhatsApp user in the deal.
As well as letting phone users chat with contacts, WhatsApp lets users chat with their phone contacts, both one-on-one and in groups. The service allows people to send texts, photos, videos and voice recordings over the internet. It lets users communicate with people overseas without incurring charges for texts and phone calls. It is free to use for the first year and costs $1 per year after that. It has no ads.
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