WhatsApp: A $19 billion bet for Facebook

March 11, 2022

NEW YORK (AP) — 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.
"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?"
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 deal stunned Gartner analyst Brian
Blau. "I am not surprised they went after WhatsApp, but the amount is
staggering," he said.
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 seems to be in
acknowledgement that people are using a lot of different apps to
communicate," said eMarketer analyst Debra Aho Williamson. "In order to
continue to reach audiences, younger in particular, it needs to have a
broader strategy…not put all its eggs in one basket."
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.
"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.

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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Liedtke reported from San Francisco. AP Business Writer Tali Arbel in New York contributed to this story.

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