https://twitter.com/MattZeitlin/statuses/436272165592125441
Facebook announced last night that it is buying WhatsApp, whose mobile product allows users to send unlimited text messages using data rather than SMS, for $16 billion in cash and stock plus another $3 billion in restricted stock. Why does Zuckerberg want the company so badly? Its user base, for one thing:
In December, WhatsApp announced it had reached 400 million active monthly users, with 100 million of them having joined since just September. It’s now up to 450 million monthly active users. According to Facebook’s Wednesday filing with the U.S. Securities and Exchange Commission, 70 percent of those people are active on a single day, and 1 million people download WhatsApp every day.
That’s 315 million people using WhatsApp every day. In the same filing, Facebook claims that the amount of data that passes through WhatsApp rivals “the entire global telecom SMS volume.”
The acquisition will also help the social media giant penetrate international markets where WhatsApp eats its lunch:
Facebook Messenger is big in the USA but not in other countries. In key markets like India and South America WhatsApp is MUCH more popular than Facebook Messenger. And this is where, we think, the majority of the immediate real value is: the global turn to mobile is quite evident and Facebook wants to be a part of it as soon as it can.
John Cassidy looks at how Facebook was able to spend the equivalent of Honduras’ GDP (or 271 Boston Globes) on the deal:
If the owners of WhatsApp had demanded an all-cash payment, it’s highly doubtful that Facebook would have agreed to pay up to nineteen billion dollars. But Facebook has an extremely highly valued currency—its own stock—that it can use in acquisitions. As I pointed out in a post about Internet stocks a couple of weeks ago, Facebook isn’t the most overpriced one around, but it’s still some wonderful wampum; in the past eight months, it has tripled in value, and by the close of business on Wednesday, it was trading at a hundred and eleven times earnings and forty-one times its cash flow. (For comparison purposes, Apple trades at thirteen times its earnings and eight times its cash flow.)
For a company that is valued at roughly a hundred and seventy billion dollars, as Facebook was on Wednesday, issuing fifteen billion dollars in stock doesn’t seem like such a big step to take. In fact, the logic may go the other way: Why wouldn’t you do such a deal?
Larry Dignan explains why the acquisition was attractive to WhatsApp, “(beyond $16 billion in cash and stock of course)”:
Facebook doesn’t go crazy with integration. WhatsApp co-founder and CEO Jan Koum will join Facebook’s board. WhatsApp will run as it does today. And Facebook has no plans to integrate WhatsApp and its Messenger service. In other words, Facebook won’t force things. That approach is appealing to startups looking to be acquired.
Jay Yarow wonders if Facebook will maintain WhatsApp’s principled aversion to ads:
WhatsApp promises that it will never have advertising, even after being bought by Facebook. Facebook is almost entirely ad supported. WhatsApp charges users $1 annually. At least, in theory it does. It has 450 million users, but Forbes says it only did $20 million in revenue last year, so it must not be charging everyone. For Facebook, this will be an experiment to see if it can support a non-advertising based business. For WhatsApp, it’s odd that it wanted to join an ad-based company considering how much it hates ads. We suppose $19 billion makes it less odd, but still.
Yglesias questions the scalability of WhatsApp’s model:
Mobile phone operators aren’t really selling consumers some voice service, some data service, and some SMS service. They are selling access to the network. The different pricing schemes they come up with are just different ways of trying to maximize the value they extract from consumers. In a world without WhatsApp, selling SMS separately from data is the best way to do that. Then along comes WhatsApp to exploit a hole in the pricing system. But if WhatsApp gets big enough, then carrier strategy is going to change. You stop selling separate SMS plans and just have a take-or-it-leave-it overall package. And then suddenly WhatsApp isn’t doing anything.
The Dish 