WhatsApp With Facebook: A Look at the $16 Billion Purchase
- Xavier Villarmarzo
- On February 19, 2014
Facebook announced today it will be buying popular mobile messaging network WhatsApp for a total value of $16 billion – $12 billion in Facebook stock and $4 billion cash. The deal was also confirmed by a regulatory filing with the Securities and Exchange Commission.
The agreement also includes an additional $3 billion in restricted stock units (RSUs) for WhatsApp’s founders and employees that will vest over four years following the deal’s closing. If the deal does not close due to regulatory fumbles, WhatsApp will still receive $1 billion in cash and $1 billion in shares from Facebook.
The social media giant said WhatsApp will continue to operate independently. This is despite the big purchase price and WhatsApp co-founder and CEO Jan Koum joining the Facebook board of directors. According to the Facebook announcement, WhatsApp serves over 450 million users worldwide every month, with 70 percent of them using the service every day. Its rapid growth accounts for over 1 million new users per day.
Most interestingly, WhatsApp’s messaging volume is almost reaching the same level of SMS messages worldwide. To put that in perpective, over 23.6 billion SMS messages are sent every day, according to Portfolio Research.
“WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,” Facebook founder and CEO Mark Zuckerberg said in an official statement. “I’ve known Jan for a long time and I’m excited to partner with him and his team to make the world more open and connected.”
This deal, which comes just three months after Snapchat’s $3 billion rebuke, is already being scrutinized for its price. The $3 billion in RSUs alone clearly show that WhatsApp’s founders and employers are worth the same to Facebook as Snapchat’s entire operation. When you consider Facebook’s $1 billion acquisition of photo-sharing app Instagram, the easy question becomes, “Is WhatsApp actually 16 times more valuable than Instagram?”
It’s no secret that WhatsApp’s user network is extremely valuable regardless of the purchase, especially if surpasses the SMS network. Despite Facebook and WhatsApp currently working autonomously, there will definitely come a point when Facebook will leverage its ownership and the messaging network’s users. Whether it’s to boost their user base by making both apps easily compatible, adding capabilities to take down Snapchat or a little of both, watching this ownership develop will be interesting.
That is, of course, if the SEC allows it.
If it does, the deal needs to start paying dividends almost immediately. All eyes will be on Facebook’s stock Thursday, as the announcement was made nearly two hours after trading ended.
With the deal, the long term question Facebook will be looking to avoid is, “Would it have been better to just have Instagram and Snapchat for $4 billion total or spent the $16 (potentially $19) billion on this deal?”
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