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Shrewd Or Desperate: Facebook To Buy WhatsApp For $19B In Cash And Stock

Greg Sterling on February 19, 2014 at 6:32 pm

It’s mostly a stock transaction: $12 billion in Facebook shares and $3 billion more to retain WhatsApp employees over four years after closing. (It will cost Facebook only $2 billion if the deal doesn’t go through). Beyond this, WhatsApp founder/CEO Jan Koum and his fellow workers will get an additional $4 billion in cash up front.

That’s roughly how much it was rumored that Facebook (and Google) unsuccessfully offered for Snapchat a few weeks ago. By comparison Facebook bought Instagram for about $1 billion. That seemed like a premium way back in 2012. Now it seems like lunch money by comparison.

Beyond WhatsApp advancing Facebook’s mission of making the world “more open and connected,” here are some of the numbers and motivations behind the deal:

WhatsApp could have become a major competitive threat to Facebook over time
The company is one of the fastest growing in startup history
It has 450 million active users globally; it’s bigger than Twitter
It replaces SMS and may ultimately steal messaging volume and revenue from global wireless carriers
The company hasn’t spent any money on marketing and yet it has seen remarkable viral growth
It costs $1 per-user, per-year (so there’s already a lot of revenue)
The team is relatively small, under 50 employees

Nothing is supposed to change at WhatsApp. Facebook says it will take a hands-off approach to managing the company. What’s interesting is: with this acquisition, Instagram, Facebook Messenger, Paper and potentially other “stand-alone” apps in the works Facebook is becoming the Proctor & Gamble of social media.

WhatsApp’s Koum and crew don’t like ads (hence the $1 fee). That may become a problem down the line as Facebook inevitably seeks to justify its purchase and further monetize the WhatsApp user base.

Facebook is down slightly in after-hours trading. It’s unclear how the market will react to this transaction: a shrewd buy or a desperate move to buy up a competitor and address its “youth problem”? Some people are calling the acquisition an admission of the latter.

But wasn’t Instagram supposed to solve that problem?

It’s an amazing bubblicious purchase price. And it’s also quite possible that in 2015 or 2016 another social media startup (“the next Twitter or Facebook”) will be experiencing similar, massive growth. Is each year thus going to see another multi-billion-dollar social media acquisition?

Probably.

About The Author

Greg Sterling

Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog, Screenwerk, about connecting the dots between digital media and real-world consumer behavior. He is also VP of Strategy and Insights for the Local Search Association. Follow him on Twitter or find him at Google+.