Facebook is placing a $19
billion bet on reaching its next billion mobile users with the acquisition of
WhatsApp, a popular messaging service that lets people send texts, photos and
videos on their smartphones.
The $19 billion deal is
by far Facebook's largest and bigger than any that Google, Microsoft or Apple
have ever done. But it is likely to raise worries that Facebook and other
technology companies are starting to become overzealous in their pursuit of
promising new products and services, said Anthony Michael Sabino, a St. John's
University business professor.
Facebook, for its part,
is taking the long view. WhatsApp has 450 million monthly users, 70 percent of
whom use it every day. The service is adding a million new users a day. There
are 19 billion messages sent and 34 billion received via WhatsApp each day, in
addition to 600 million photos and 100 million video messages.
At this rate, Facebook
CEO Mark Zuckerberg is confident the app will reach a billion users. Services
that reach that milestone, Zuckerberg said in a statement, "are all
incredibly valuable."
It's an elite group to be
sure — one that includes Google
(which owns YouTube), Facebook itself and little else.
Facebook said Wednesday
that it's paying $12 billion in stock and $4 billion in cash for WhatsApp. In
addition, the app's founders and employees —
55 in all — will be granted restricted
stock worth $3 billion that will vest over four years after the deal closes.
The transaction
translates to roughly 11 percent of Facebook's market value. In comparison,
Google's biggest deal was its $12.5 billion purchase of Motorola Mobility,
while Microsoft's largest was Skype at $8.5 billion. Apple, meanwhile, has
never done a deal above $1 billion.
Facebook's $1 billion
Instagram deal seems like a bargain in retrospect. Capturing mobile users — and young people — was a big reason behind
Facebook's 2012 purchase of the photo-sharing app. Even its reported $3 billion
offer for disappearing-message app Snapchat pales in comparison. Snapchat
spurned the bid.
The world's biggest
social networking company likely prizes WhatsApp for its audience of teenagers
and young adults who are increasingly using the service to engage in online
conversations outside of Facebook, which has evolved into a more mainstream
hangout inhabited by their parents, grandparents and even their bosses at work.
WhatsApp also has a broad
global audience.
Zuckerberg said the
service "doesn't get as much attention in the U.S. as it deserves because
its community started off growing in Europe, India and Latin America. But
WhatsApp is a very important and valuable worldwide communication network. In
fact, WhatsApp is the only widely used app we've ever seen that has more
engagement and a higher percent of people using it daily than Facebook
itself."
Blau said Facebook's
purchase is a bet on the future. "They know they have to expand their
business lines. WhatsApp is in the business of collecting people's
conversations, so Facebook is going to get some great data," he noted.
In that regard, the
acquisition makes sense for 10-year-old Facebook as it looks to attract its next
billion users while keeping its existing 1.23 billion members, including
teenagers, interested. The company is developing a "multi-app"
strategy, creating its own applications that exist outside of Facebook and
acquiring others. It released a news reader app called Paper earlier this
month, and has its own messaging app called Facebook Messenger.
Facebook said it is
keeping WhatsApp as a separate service, just as it did with Instagram, which it
bought for about $715.3 million nearly two years ago.
At $19 billion, Facebook
is paying $42 per WhatsApp user in the deal.
For Facebook, WhatsApp's
huge user base, fast growth pace and popularity is worth the money.
"We want to provide
the best tools to share with different sized groups and in different contexts
and to develop more mobile experiences beyond just the main Facebook app, like
Instagram and Messenger," Zuckerberg said in a conference call. "This
is where we see a lot of new growth as well as a great opportunity to better
serve our whole community."
WhatsApp, a messaging service for smartphones, lets users chat with their phone contacts, both one-on-one and in groups. The service allows people to send texts, photos, videos and voice recordings over the Internet. It also lets users communicate with people overseas without incurring charges for pricey international texts and phone calls. It's free to use for the first year and costs $1 per year after that. It has no ads.
Asked about the
demographics of WhatsApp's users, Facebook finance chief David Ebersman said
that, "if you look at the kind of penetration that WhatsApp has achieved,
it sort of goes without saying that they have good penetration across all
demographics, we would imagine.
That said, "it's not
a service that asks you to tell them your age when you sign up," he added.
Facebook's shares fell
$1.82, or 2.7 percent, to $66.24 in after-hours trading Wednesday after the
deal was announced. Earlier in the day, the stock hit a 52-week high of $69.08.
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