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Is WhatsApp Really Worth $19B to Facebook?

Is WhatsApp Really Worth $19B to Facebook?
February 20, 2014 10:06AM

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Can Facebook make money off the $19 billion it’s paying for WhatsApp? How many of its 450 million users are net new to Facebook? How can Facebook convert those users into recurring revenue? Assuming all 450 million WhatsApp users pay $1 a year, it could break even in about 40 years. By that time, Mark Zuckerberg should have outgrown his hoodies.

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As it continues its evolution in a mobile era, Facebook is making another blockbuster acquisition. The social media giant just grabbed WhatsApp for $19 billion.

WhatsApp is a fast-growing cross-platform mobile messaging company. The sale price is $16 billion, including $4 billion in cash and about $12 billion worth of Facebook shares. The agreement also provides for an additional $3 billion in restricted stock units to be granted to WhatsApp's founders and employees that will vest over four years after the deal closes.

"WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable," said Mark Zuckerberg, Facebook founder and CEO. "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."

Driving User Engagement

Here are some numbers behind WhatsApp: More than 450 million people use the service each month. Seventy percent of those people are active on the service on any given day. WhatsApp’s messaging volume is approaching the entire global telecom SMS volume. And the company is posting continued strong growth, adding more than 1 million new registered users per day.

From the outside looking it, it appears the acquisition really does support Facebook and WhatsApp’s shared mission to bring more connectivity and utility to the world by delivering core Internet services efficiently and affordably. The companies are betting the merger will help accelerate growth and user engagement across both companies.

"WhatsApp's extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide,” said Jan Koum, co-founder and CEO of WhatsApp.

Was It a Good Buy?

Facebook likes to think it fosters an environment where independent-minded entrepreneurs can build companies, set their own directions and focus on growth while also benefiting from the social media giant’s expertise, resources and scale. The company said this approach is working well with Instagram, and WhatsApp will operate in the same manner.

We caught up with Marcus Nelson, former head of social media at Salesforce.com and current CEO of Addvocate, a social sharing platform for people at work, to get his take on the megadeal. He told us, as the CEO of a startup, he’s thrilled to see any company get $350 million per employee.

“Even so, I’m hard pressed to understand how Facebook expects to make money off that $19 billion it’s paying for WhatsApp,” Nelson said. “We don’t know how many of its 450 million users are net new to Facebook, or how Facebook can convert those users into recurring revenue. Assuming all 450 million WhatsApp users pay $1 a year, it could break even in about 40 years. By that time, Mark Zuckerberg should have outgrown his hoodies."

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