Facebook Gets Younger, Cooler With $19B Buy of WhatsApp

WhatsApp users will want to know this right away: Facebook has promised to keep the WhatsApp brand identity and service levels as they are.

The whispers--as well as the straight talk--about Facebook lately has been around the fact that its 1.2 billion-member audience is getting older, and that young preteen and teenage social network users are falling away in droves because their parents are also on Facebook.

Well, Facebook is about to get much younger and cooler. The world's largest social network revealed Feb. 19 that it will pay $4 billion in cash and $12 billion in stock for super-messaging site WhatsApp, the fast-growing darling of the kiddie social world.

An extra $3 billion in stock will be paid to WhatsApp founders and management at a later date, technically making the deal worth $19 billion. Since Facebook's current market cap is $173.5 billion, the company is committing in the neighborhood of 10 percent of that value to the acquisition.

WhatsApp Messenger is a cross-platform mobile messaging app that allows users to exchange messages without having to pay separately for SMS. The freemium WhatsApp Messenger is available for iPhone (free for first year, $1 annually thereafter), Android, BlackBerry and Nokia phones.

Images, Multimedia, Audio Messaging Also Part of Service

In addition to basic messaging, iPhone, Android and BlackBerry WhatsApp Messenger users can send each other unlimited images, video and audio media messages. Facebook's onsite messaging app has never been one of its most utilized features.

WhatsApp users will want to know this right away: Facebook has promised to keep the WhatsApp brand identity and service levels, and it will remain separate from the mothership. So they don't need to think Mom and Dad will be hanging out there anytime soon.

This is by far Facebook's single largest acquisition, way more than the $1 billion it paid for photo-sharing app Instagram a year ago. Facebook also pledged a $1 billion cash break-up fee if the deal were to fall through.

Santa Clara, Calif.-based WhatsApp, which has about 50 employees, has grown extremely fast since its launch in 2009 and started dominating its market segment in Europe three years ago. As of January 2014, WhatsApp reported 430 million users. The service claims about 200 million active monthly users, 10 billion messages sent and 17 billion received in a single day. In 2013, its users sent 18 billion messages and received 36 billion in return, three times the previous year’s metrics.

Prior to the deal announced Feb. 19, WhatsApp had had only $8 million in funding from Sequoia Capital in 2008.

WhatsApp Had Only $8M in Venture Funds

As part of the deal, WhatsApp co-founder and Chief Executive Jan Koum will join Facebook's board. Facebook will grant an additional $3 billion worth of restricted stock units to WhatsApp's founders, including Koum.

The stock price of the Menlo Park, Calif.-based network fell about 5 percent to $64.70 in after-hours trading--down from a close of $68.06 on the Nasdaq.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...