Facebook to Acquire WhatsApp: A Good Move

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Facebook announced on Wednesday that it will buy WhatsApp for US$19 billion (~RM 62.8 billion) – US$4 billion in cash, US$12 billion in Facebook stock, and another US$3 billion in restricted stock options that will vest over four years subsequent to closing. Although that seems like an unfathomably high price for a start-up with a staff of 55, Facebook may have actually gotten quite a good deal.

WhatsApp has more than 450 million monthly active users, 70% of which are active on any given day. And it’s growing at an amazing rate. About 200 million users joined just in the past eight months. Its active user number even surpasses Twitter as well as Facebook Messenger.

As importantly, although only five years old, WhatsApp has grown to over one third of the size of Facebook. And there are signs that Facebook’s appeal is waning among the hip crowd. Facebook CFO David Ebersman admitted last year, “we did see a decrease in daily users, partly among younger teens”. WhatsApp could help address that issue.

The simple-to-use mobile chat service is very popular among the youth. It cuts across platforms and national barriers, and is cheap to use at only US$1 a year, compared to the per-text charge from mobile carriers.

Facebook will focus on attracting as many new users as possible, thereby becoming the dominant mobile messenger in the world. The company won’t be looking to make money off its purchase immediately. “Our explicit strategy for the next several years is to focus on growing and connecting everyone in the world,” Facebook CEO Mark Zuckerberg said. To that end, WhatsApp will continue to operate independently within Facebook and remain ad free, which will be good news to users.

To help put WhatsApp’s acquisition into financial context, consider Twitter. Twitter has a market cap that stands at around US$20 billion (~RM 66 billion); however, Twitter has significantly less active users (230 million). With more than 1 million people signing up for WhatsApp every day, there is no doubt that there will be ways to further monetize the service down the line.

The deal will be completed later in 2014, subject to regulatory approval.

To illustrate WhatsApp’s incredible growth, look at this chart comparing the first four years of growth among major social media applications.





AND READ MORE: About Tech in Malaysia


Image Credit: Forbes and abulhussain / Foter / CC BY

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