Acquisitions

Facebook Buys WhatsApp for $19 Billion


Facebook Buys WhatsApp for $19 Billion

Photograph by Karly Domb Sadof/AP Photo

Today’s collective gasp at the frothy valuations and pace of mobile transformation in the Internet business comes courtesy of Facebook (FB). The social network announced after the close of the market on Wednesday that it has acquired mobile messaging service WhatsApp for $19 billion.

As several commentators tweeted, reaching simultaneously for the low-hanging comedy fruit: “They should call it WTFapp.”

Yes, the price is $19 billion: $4 billion in cash, about $12 billion in Facebook stock, and $3 billion in restricted shares, to pay out to WhatsApp employees over the next four years. For a five-year-old company with 50 employees, that translates into $380 million per person—and a heck of a haul for the startup’s venture investors, led by Sequoia Capital. WhatsApp founder Jan Koum, a former Yahoo! (YHOO) employee, will join Facebook’s board of directors.

WhatsApp makes a popular smartphone application that allows users of various devices, such as iPhones, BlackBerrys (BBRY), and phones running Android, to send texts and photographs seamlessly and without paying the additional fees carriers charge for SMS messages. (It’s free to use for the first year, then costs just a dollar a year.) According to Facebook, the service has 450 million active users on any given day and is on track to connect 1 billion people.

Facebook says that WhatsApp, like Instagram, will remain largely independent from the social network. The acquisition positions the company for even stronger growth on mobile phones, where advertising now makes up the majority of its revenue. It also strengthens its toehold in China: Facebook is blocked in the world’s largest Internet market; WhatsApp and Instagram are permitted to operate there.

In a conference call after the deal was announced, Facebook Chief Executive Officer Mark Zuckerberg called WhatsApp “an extremely high-quality product with incredibly strong engagement and rapid growth. It doesn’t get as much attention in the U.S. as it deserves because it started out growing in Europe, India, and Latin America.” He added: “It’s the only widely used app we’ve ever seen that has a higher rate of engagement than Facebook itself.”

Zuckerberg said the deal started to take shape on Feb. 9th, when he invited Koum to dinner and proposed that an acquisition could help both companies accelerate their growth and connect the world. Both said the deal came together quickly, with Zuckerberg adding that WhatsApp “is on a clear path to have a billion people using its product. Services in the world that have a billion people using them are all incredibly valuable.”

Koum, who founded the company with fellow Yahoo alum Brian Acton, said on the conference call that WhatsApp’s mission is “to make time mobile communication experiences simple, powerful, instantaneous, and commonplace. Our goal is to build a service that could be used by everyone … and a better alternative to SMS.”

Zuckerberg telegraphed his intentions to make these kinds of acquisitions during an interview in January for a Bloomberg Businessweek cover story. He revealed that he was pursuing a portfolio strategy, where apps could stand apart from the main social network and users would not be required to log in with their Facebook credentials.

“We just think that there are all these different ways that people want to share, and that compressing them all into a single blue app is not the right format of the future,” Zuckerberg said in January.

After which we opined: “In other words, the future of Facebook may not rest entirely on Facebook itself.”

Stone_190
Stone is a senior writer for Bloomberg Businessweek in San Francisco. He is the author of The Everything Store: Jeff Bezos and the Age of Amazon (Little, Brown; October 2013). Follow him on Twitter @BradStone.

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Companies Mentioned

  • FB
    (Facebook Inc)
    • $78.4 USD
    • 2.29
    • 2.92%
  • YHOO
    (Yahoo! Inc)
    • $50.91 USD
    • 0.79
    • 1.55%
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