NEW YORK - Facebook (FB) is buying mobile messaging service WhatsApp for $19 billion in cash and stock, by far the company's largest acquisition and bigger than any that Google, Microsoft or Apple have ever done.
The world's biggest social networking company said Wednesday that it is paying $12 billion in Facebook 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 deal 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.
The deal's price tag stunned Gartner
analyst Brian Blau. "I am not surprised they went after WhatsApp, but the
amount is staggering," he said.
Facebook 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. Facebook CEO Mark
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
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.
WhatsApp has more than 450 million
monthly active users. In comparison, Twitter had 241 million users at the end
of 2013. At $19 billion, Facebook is
paying $42 per WhatsApp user in the deal.
The transaction is likely to raise
worries that Facebook and other
technology companies are becoming overzealous in their pursuit of promising
products and services, said Anthony Michael Sabino, a St. John's University
"This could be seen as a
microcosm of a bubble," Sabino said. "I expect there to be a lot of
skepticism about this deal. People are going to look at this and say, 'Uh, oh,
did they pay way too much for this?"
WhatsApp's huge user base, fast growth pace and popularity is worth the money.
The app is currently adding a million new users a day. At this rate, said
Zuckerberg, WhatsApp is on path to reach a billion users. He called services
that reach this milestone "incredibly valuable." It's an elite group
to be sure - one that includes Google (which owns YouTube), Facebook itself and little else.
"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
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 costs $1 per year and has no ads.
"It'll be tempting to read this
as a sign Facebook is scared of
losing teens," said Forrester analyst Nate Elliot in an emailed note.
"And yes, the company does have to work hard to keep young users engaged.
But the reality is, Facebook always
works hard to keep all its users engaged, no matter their age. Facebook is tireless in its efforts to keep
users coming back."
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.
The deal is expected to close later this year.