Facebook to buy messaging app WhatsApp for $19bn

 

Facebook's $19bn WhatsApp deal explained in 60 seconds

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Facebook has bought messaging app WhatsApp in a deal worth a total of $19bn (£11.4bn) in cash and shares.

It is the social networking giant's biggest acquisition to date.

WhatsApp has more than 450 million monthly users and is popular with people looking to avoid text messaging charges.

In a statement announcing the deal, Facebook founder Mark Zuckerberg described WhatsApp's services as "incredibly valuable".

WhatsApp allows users to send messages over internet connections, avoiding text messaging fees. The company claims it is currently registering one million new users a day.

It makes money by charging users a subscription fee of $1 per year, although it offers a free model as well.

The BBC's Dave Lee explains why some analysts think it may yet prove to be a good buy

Silicon Valley's newest billionaires

The deal to buy it includes $4bn in cash and approximately $12bn-worth of Facebook shares, plus an additional $3bn in stock to WhatsApp's founders and employees at a later date.

On a conference call to discuss the deal, WhatsApp co-founder Jan Koum said he planned to operate the firm "independently and autonomously". He will also become a member of Facebook's board of directors.

"We're excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world," Mr Koum said in a statement.

Mr Zuckerberg said the prospect of a deal was first floated just 11 days ago.

Analysis

That Facebook bought WhatsApp is less of a surprise than the sheer amount it has been willing to pay for it.

Some are seeing the $19bn price tag as further evidence of swollen valuations of companies as the sector experiences what may yet prove to be another dotcom bubble.

WhatsApp does give Mark Zuckerberg inroads into international markets and, as importantly, to a younger demographic. But what is less clear is whether the finances will add up in the long term.

WhatsApp has reiterated its commitment to an ad-free service, opting to charge users a mere $1 per year. Under this scenario, it will need to continue its growth trajectory to ensure any financial return to Facebook.

But Adverts are pivotal to Facebook's own business model - and the pressure for it to monetise its new WhatsApp user base in the same way may prove too tempting to resist.

The Facebook founder said he believed WhatsApp was on track to have a billion users, but insisted he had no plans to place advertising on WhatsApp's interface, saying he did not think ads were the best way to make money from messaging systems.

Once the deal is finalised, Mr Koum and co-founder Brian Acton are set to become Silicon Valley's newest billionaires.

WhatsApp has about 50 employees in total.

Siphoning billions

Cathy Boyle, a senior analyst at research firm eMarketer, said WhatsApp was valuable to Facebook for several reasons beyond advertising, including its younger user base and its popularity overseas.

"WhatsApp actually has greater penetration in a lot of international markets than Facebook," Ms Boyle told the BBC.

She added that it was notable that Facebook's chief financial officer David Ebersman referred to the telecommunications industry when discussing the firm's purchase.

"WhatsApp is trying to siphon the billions that the telecom industry would make from [traditional SMS text messaging]" she said.

WhatsApp users talk about what they like and dislike about the app

Ben Bajarin, from California-based technology consultants Creative Strategies, told BBC Radio 4's Today programme that the deal would allow Facebook to tap into a rapidly growing market.

"WhatsApp is on a path towards a billion users," he said. "They're growing exponentially - much, much faster than Facebook.

"For Facebook this is a key growth area where, even if they don't monetise this product, this is a way that Facebook can get the next billion smartphone consumers into their ecosystem... to touch them and engage with them in other ways than just the Facebook platform."

Shares in Facebook dropped 5% in after hours trading before recovering slightly.

Prior to this acquisition, Facebook's biggest purchase had been Instagram for $1bn in 2012.

It had also reportedly offered $3bn to acquire photo messaging service Snapchat.

 

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  • rate this
    0

    Comment number 436.

    Another app to be taken over by the ad machine.My grandchildren use whatsapp for when their credit runs out.Just a simple messaging service will be taken over just as facebook was and ruined.Once corporatism gets involved it will want it's moneysworth bye bye privacy and ethics.

  • rate this
    -2

    Comment number 435.

    A big success of the business run by a family of the marriage of a Jewish and a Chinese - IQ dominates the world

  • rate this
    +3

    Comment number 434.

    $15 billion of the price is in Facebook shares.

    So WhatApp will be hoping that Facebook's share price will retain some value.

    Silly money in a crazy world.

  • rate this
    +1

    Comment number 433.

    You know something is drastically wrong when companies such as Farcebook are valued at tens of billions when all they have to sell is advertising space.

    Another dotcom deflation will happen.

  • rate this
    +2

    Comment number 432.

    Been using Whatsapp for some time. Loved the concept they put forward, clear, easy, NO adverts.

    Anyone know a good replacement?

  • rate this
    +2

    Comment number 431.

    Coca-cola is "worth" $74 billion, anyone can make a fizzy drink...

    It's not the product / idea they are buying here - it's the 430 million users/customers and the brand.

    All well and good saying "I'm going to switch" but they are relying on your friends / contacts not switching.

  • rate this
    0

    Comment number 430.

    So, what does Whatapp do that Facebook messenger doesn't? So, technology is not what they have bought. For arguments sake, lets say FB has put a price on the user base of WhatsApp. It is a whopping s $42.00 per user. Somebody needs to do his maths right

  • rate this
    0

    Comment number 429.

    Facebook are paying so much not for the simple and easy to replicate concept but the large user base it has developed and all the data they will offer to Facebook to do with as they please #cough #cough GCHQ and NSA

  • rate this
    +1

    Comment number 428.

    @414.AJ, completely agree in regards to the IP, however, consider the amount of data that they will be able to obtain, and then sell on to Third parties. That is where the value really is, they also have the chance to coerce users who dont have facebook already to join it in order to keep using the app once its intgrated.

  • rate this
    -2

    Comment number 427.

    Well that's my Whatsapp account deleted, i'll go back to using texts or calling people. I'm fed up having Facebook fingering every application and service i try and use online. Its a VIRUS

  • rate this
    +6

    Comment number 426.

    How long before Zuckerberg buys our NHS data? It won't be that blatant. More like a subsidiary company that will 'manage' the data as an outsourced service. Adverts will pop up shortly before each dialysis session: "Need a new kidney?... Come to Kidneys-R-Us... Special offer this week... Buy 2, get a third free..."

    OMG. Horrible thought. OrganBay!!

  • rate this
    0

    Comment number 425.

    I think this move is hardly surprising of Facebook who appear to have a strategy of buy anything that is a threat to them. Rather concentrating on improving their services so that they can better engage with the ever changing dynamics that is the world of social networking..........

  • rate this
    +3

    Comment number 424.

    So at around $30 per current user - assuming they are all active and all paying $1 per year for the service (noting that a free model is available) we are to believe that Facebook are not planning to advertise through this?
    So they are happy to wait 30 years just to make their money back? Or are they flogging the contact list onto anyone who wants to pay a few bucks for it?

  • rate this
    +1

    Comment number 423.

    397.Geoff
    I don't like sponsored adverts, don't click on them, would not buy through them ... I also find it intrusive that when I look at a website I start to automatically get ads based on that website.
    --
    If nobody clicked on ads, 95% of the free info online would disappear. To avoid being a hypocrite you should buy a book rather than taking advantage of those who provide free websites.

  • rate this
    +1

    Comment number 422.

    Put Adblock plus (free) on your computer and drive this money grabbing menace from the WWW. Another Bill gates. Makes the footballers pay seem saintly.

  • rate this
    +3

    Comment number 421.

    "WhatsApp allows users to send messages over internet connections, avoiding text messaging fees."

    Email does the same job and been around a lot longer than WhatsApp. Furthermore it's free from Facebook's grasp.

  • rate this
    +2

    Comment number 420.

    Chavebook advertisers must be rubbing their hands but they're the ones that will pay.

  • rate this
    0

    Comment number 419.

    If only Mark was British.

    We'd tax him to death and get our debts sorted. Good buy though, WhatsApp equals a lot of paying users (including me) might get a link between it and Facebook. But if it gets expensive or ad-ridden, I'm out.

  • rate this
    +1

    Comment number 418.

    Ridicules to pay so much for a piece of software that has more potential to vanish soon ( to some other new killer App) rather flourish. But hey, Mark knows one of the founders so I am sure this "friendly price tag" has it's merit….

  • rate this
    +2

    Comment number 417.

    Yawn............

    Please excuse lack of enthusiasm. I've never felt that I need to tell people everytime I burp, eat, sleep etc............ I have a real life to live and real people to talk to. HYS today is big non-news. See you tomorrow!!

 

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