Facebook's $19 Billion WhatsApp Deal: Why Zuckerberg Paid so Much

 
 
By Don Reisinger  |  Posted 2014-02-24 Email Print this article Print
 
 
 
 
 
 
 
 

Facebook stunned the world Feb. 19 when it announced that it would buy out WhatsApp, a mobile-messaging service, for $19 billion in cash and stock. The acquisition will be one of the largest in Silicon Valley history and reflects the growing importance of Web messaging and communications to companies such as Facebook and Google that are trying to heavily monetize social services. In fact, Google reportedly tried to acquire WhatsApp for $10 billion, though that hasn't been confirmed by either firm. Some industry observers criticized Facebook and Mark Zuckerberg for agreeing to pay so much for WhatsApp, suggesting that the privately held startup or any startup couldn't be worth that much money. A closer look at the deal suggests that the price might have been justified. Some analysts have said that the acquisition could dramatically improve Facebook's bottom line over the next several years as it's strives to diversify its service offers to keep users and investors happy. So, while it's debatable that WhatsApp might be worth the high price, Facebook was willing to pay so much for the company because it believed it couldn't afford to lose it. Read on to find out why.

 
 
 
  • Facebook's $19 Billion WhatsApp Deal: Why Zuckerberg Paid so Much

    by Don Reisinger
    1 - Facebook's $19 Billion WhatsApp Deal: Why Zuckerberg Paid so Much
  • Facebook Needs Better Communication

    Facebook has been doing a better job of appealing to the communication needs of its users. However, the company's messaging platform has not taken off the way the company would like, and it appears that it could take too long for its chatting and messaging services to gain significant market share. It's hoping that acquiring WhatsApp will solve that problem.
    2 - Facebook Needs Better Communication
  • The Global Mobile Messaging Market Is Huge

    Although $19 billion might seem awfully expensive, the global mobile messaging market is exploding. In fact, Sterne Agee analyst Arvind Bhatia estimates that it's currently a $100 billion market and growing quickly. WhatsApp owns a significant portion of that space. That's all good news for Facebook.
    3 - The Global Mobile Messaging Market Is Huge
  • WhatsApp Is Massive

    WhatsApp is downright huge. The company claims that it has more than 450 million monthly active users. With that many users in tow, Facebook can drive more people to its services, monetize through several outlets and generate serious cash in no time. After all, if Facebook figured out the mobile monetization conundrum once before, why can't it do so again?
    4 - WhatsApp Is Massive
  • WhatsApp Is Growing Rapidly

    According to Bhatia, WhatsApp is adding more than 1 million new users to its service each day. Many of those folks are being added internationally, which could prove important to Facebook over the long term. Either way, Facebook isn't acquiring a stagnant company; it's buying a firm with real growth prospects.
    5 - WhatsApp Is Growing Rapidly
  • Another Facebook Inside Facebook?

    Here's an interesting thought: What if Facebook had another Facebook-sized company inside of it? That could very well happen. WhatsApp, with its 450 million monthly active users, is expected to grow that number to more than 1 billion people in the coming years, the company's executives believe. Add that to Facebook's billion users, and one can see why the world's largest social network was so excited to get what will be over the long term the world's largest mobile messaging service.
    6 - Another Facebook Inside Facebook?
  • Twitter Is No Match

    There have been some questions on Wall Street asking why Facebook didn't first try to acquire Twitter. Perhaps the answer to those questions is in the numbers: Twitter had just over 240 million users at the end of 2013 and could only muster 9 million new users in the last quarter. WhatsApp is adding that many people in less than two weeks. Plus, Twitter has yet to fully prove that it can build out its monetization efforts. All in all, Twitter seems like a less-than-desirable buy.
    7 - Twitter Is No Match
  • Consider the Potential Valuation

    Although some might argue that whatever a company pays for a firm is what it's worth, one might view the WhatsApp purchase as a bargain in just a few short years. Consider this: Twitter is currently valued at more than $33 billion, despite having far fewer users and less growth. Granted, WhatsApp never issued an initial public offering as Twitter did. If the Street believes Twitter is worth that much, WhatsApp might soon actually be worth quite a bit more than the $19 billion, but to Facebook, rather than as an independent public company.
    8 - Consider the Potential Valuation
  • Facebook's International Growth Continues

    The key to Facebook's success in the future will be its ability to grow internationally. As its recent quarterly filings have shown, its growth in developed countries is slowing, and it's relying on major developing markets for growth. That could be another reason Facebook was so enthralled with WhatsApp. The messaging platform is wildly popular in Europe and Latin America, and has seen much of its growth (and revenue) come internationally. Facebook could use WhatsApp as a stepping stone to build its own user base in international markets.
    9 - Facebook's International Growth Continues
  • More Leverage With Telcos

    WhatsApp has become so popular that its daily message volume, which exceeds 53 billion messages per day, is gradually closing in on the total volume of Short Message Service (SMS) texts sent through carrier networks. Facebook can use that to its advantage in any future negotiations with telcos. After all, text messaging is no longer the cash cow it once was for telcos, due mainly to unlimited texting plans and the fact that SMS puts a heavy load on networks. If more and more carriers can offload that load to Facebook's WhatsApp, it gives the social network leverage in any other mobile ventures it might have up its sleeve.
    10 - More Leverage With Telcos
  • It's Not Just About Messaging

    Finally, and perhaps most importantly for Facebook, WhatsApp is not just a messaging platform. The software handles 600 million uploaded photos each day and 100 million video messages. Like the Instagram deal, all of that content could be integrated into Facebook, increasing user engagement with the social network and potentially earning the company more money. Facebook's WhatsApp buy might just prove to be one of the most profitable decisions the company has ever made.
    11 - It's Not Just About Messaging
 
 
 
 
 
 
 
 
 
 
 

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