Facebook Acquires Texting Platform WhatsApp for $19 Billion
Facebook announced last night it will be acquiring the mobile texting platform WhatsApp for $19 billion— broken down into a $4 billion up-front cash payment, $12 billion in stock, and an additional $3 billion of stock paid out to employees and founders vested over four years. Though WhatsApp has developed a dedicated following of roughly 450 million worldwide users, and has already monetized its platform by instituting a $1 annual subscription charge, the acquisition is newsworthy mostly because of the enormous price tag (Facebook’s largest acquisition by far). TechCrunch published a great article contextualizing the WhatsApp purchase by comparing it to other valuable things. From the article: $19 billion is… 4x the market cap of BlackBerry About equal to the market cap of The Gap 10% more than Sony’s market cap Three-fourths the market cap of Delta 7.5 Mark Cubans About 33% of HP’s market cap 2 nuclear submarines 62% of Twitter’s market cap 25 Instagram acquisitions Analysts are giving mixed reviews on whether the acquisition is a good strategic decision. Facebook already has deep experience with mobile phone software design, so acquiring a highly-used texting platform complements its existing strategy. Similar to the Instagram acquisition, Facebook is also really buying 450 million active mobile users. The founder of WhatsApp, Jan Koum, will also be joining Facebook’s Board of Directors, which means that new expertise will be added to Facebook’s core management. The valuation growth for WhatsApp is insane, having only raised $8 million since the app’s 2011 launch, and now being valued at $19 billion roughly three years later. But, time will tell if the value WhatsApp brings justifies the lofty acquisition pricetag. Investors in the first day of trading sent Facebook stock down about 1.5% on concerns the dilution outweighs the value, but the Street also criticized Google’s acquisition of Youtube at the time (for much less), and it’s now one of Google’s core assets. One thing is certain: valuations continue to get increasingly frothy. An open question is whether this represents another tech bubble that will ultimately pop. Certainly, I expect valuations to come down at some point in time rather than continue this rate of increase.
