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 596.

    595. Studium -- Big advertising has known for years - say its your generation and teens will fall for it in cloths, music, etc. Todays teens just can't destroy photos when they grow up and ask Mom why did you let me wear that? do that?

    And just a cheer to the museum cleaners who know trash when they see it!! Seems the museum directors didn't.

  • rate this
    0

    Comment number 595.

    Interesting . . Facebook want a younger user base. Problem is the younger user base is constantly redefining what's current and happening. At $19bn an app Facebook will soon be bankrupt.

  • rate this
    0

    Comment number 594.

    Amazed at the price. WhatsApp isn't even that good... Line must be rubbing their hands with glee being a lot more superior...

  • rate this
    +1

    Comment number 593.

    Got to have money to make money, hope you're proud of yourself.

  • rate this
    +1

    Comment number 592.

    what i find telling is that huge numbers of people not only distrust but actively dislike facebook. It's the beginning of the end for them, young people dont want to feed the government/corporate machine.

    Whats more facebook is stupidly over valued.

  • rate this
    -1

    Comment number 591.

    I know HYS picks up many rural pensioners during the work day, when they have nothing else to do, but please; it's not the software.

    It is $4bn cash & the rest in shares to buy a firm with a rocketing userbase nearing 1bn. The private details of current & future (& even deleted) users are worth a lot. They're buying access to consumers, with valuable insight to intimate personal interests.

  • rate this
    0

    Comment number 590.

    This seems like a bargain for what has been proven to be a replacement for SMS. It's also forced many mobile providers to move to a model of not charging per SMS and just making it part of the bundle.
    Facebook is getting increasingly annoying with video adverts and changing privacy. If they fabookify whatsapp it will be terrible, lets hope they treat it like Microsoft treated Skype.

  • rate this
    +1

    Comment number 589.

    Use Viber - it is better.

  • rate this
    0

    Comment number 588.

    244. Andrew

    Like it.

    However I do not want to mislead and since my app will, in line with government guidelines, be totally useless I feel I should call it CrapApp.

  • rate this
    0

    Comment number 587.

    Crazes and obscene!? Comment any one ?

  • rate this
    0

    Comment number 586.

    573.
    superal1966
    1 Hour ago

    572. Umkomazi

    You don't like Facebook and you are very bitter about it. I'm not sure the World cares much for your opinion on social media.

    I would try and argue that the fact this acquisition has been reported across the globe suggests it is big news, but I fear you'll insert more random capital letters when quoting me.

    Nope - I live in the REAL not cyber world.

  • rate this
    0

    Comment number 585.

    To all those saying it's too much money to pay because it's easy to develop or they will switch to another app: The value of the app is not derived from cost of development only but the value of the network (number of users). Switching to another app is easy but useless if all your contacts are on whatsapp.

  • rate this
    -1

    Comment number 584.

    The Facebook Broadcasting Corporation (aka BBC) seems to think this is important. An over-hyped company paying a absurd price for a company with just 50 employees that's all. I use Facebook, but don't get the fawning over what will undoubtedly prove to be another case of new clothes for the Emperor Zuckerberg.

  • rate this
    0

    Comment number 583.

    @ 566.EmersonV

    "Civil war in the Ukraine, economy picking up, more people use food banks, flooding and we get to comment on this non story."

    If your life revolves around commenting on things you find interesting in the news (and things you obviously don't!), I suggest you get some friends.

  • rate this
    0

    Comment number 582.

    This has the potential to back fire. Aside from the overvaluation, if facebook start intrusively advertising or selling data, people will start to switch to another app that offers the same.

    If someone were to write an app similar to WhatsApp that allowed people to communicate securely then there would be a good reason to switch.

    Especially if they followed the $1 per year model.

  • rate this
    +1

    Comment number 581.

    I've been using WhatsApp and WeChat. Now moving all my contacts to WeChat, bye bye facebook

  • rate this
    +1

    Comment number 580.

    Hmm. I guess it's time to move over to Viber....

  • rate this
    +2

    Comment number 579.

    It is so so sad! I deleted my Whatsapp account.

    cos I will never accept Facebook and its policy.

  • Comment number 578.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 577.

    @567 Andrew

    Easy to say "I could have done that". You didn't and you writing it now would not have acquired 450m users. You know that, and Facebook knew it before you.

    However, agree that this is all about eliminating competition. The price is almost irrelevant for a company that is itself a massive bet on the future, which people are currently still buying out of fear they will miss out.

 

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