WhatsThat? Facebook’s $19B question

whatsapp_1_contentfullwidthYou’ve probably heard by now that Facebook is acquiring the messaging app WhatsApp for a whopping $19 billion. Yep, you read that right, $19 billion, a HUGE amount of money, and so naturally people might be wondering why on earth is the service worth so much?

According to reports, the $19 billion price tag is broken down as $4 billion in cash for all of WhatsApp’s outstanding shares, plus 183,865,778 shares of Facebook Class A common stock that’s worth $12 billion. When the deal is finalized, Facebook will grant 45,966,444 restricted stock units to WhatsApp employees, worth a total of $3 billion. The total of Class A common stock and RSUs issued to WhatsApp shareholders and employees upon closing will represent 7.9 percent of Facebook shares. If somehow the acquisition does not move forward, Facebook will pay $1 billion in cash as well as $1 billion worth of stocks. Looking at the deal, WhatsApp really has nothing to lose whether the deal goes forward or not.

It was reported that Facebook was acquiring WhatsApp back in 2012, but the chat service was quick to dismiss the possibility, stating it was just a rumor. However, it does indeed look as if the acquisition was in the works as early as 2012, but the two companies may not have seen eye to eye back then, thus the deal did not move forward. It could be that Facebook’s offer then wasn’t enough for WhatsApp at the time.

The $19B question?


Still, why pay $19 billion for a chat service when Facebook already has its own, very popular messenger app?

For those of you who don’t know what WhatsApp is, it’s a cross-platform messaging service that is available on Android, iOS and others. It offers basic features such as sending of multimedia such as videos, photos and voice notes; Group Chat; no international charges; no need for PINs  and usernames; logging in or out; no need to add buddies as WhatsApp finds your contacts using the app; offline messages are stored and you will receive them when an internet connection is once again established; location sharing; custom notification sounds; e-mail chat history; and broadcasting messages to many contacts at once.

The big catch is, unlike other messaging services that slap you with ads every five minutes, WhatsAppdoesn’t.  For the first year, WhatsApp is free to use, after that, if you wish to continue using the service you need to pay a $0.99 yearly fee. If you think about it, $0.99 is nothing considering you get to keep on chatting with your contacts without worrying about high phone bills.

Messaging services like WhatsApp actually pose a huge threat to Facebook, because many ignore the social media giant’s own app. According to WhatsApp, it counts some 450 million people using the service each month, and it’s adding around a million new users each day. That’s why WhatsApp is a potential goldmine for Facebook – especially with the younger generations reportedly weaning themselves off of Facebook because their parents are also using it. Teens are looking for some place talk to their friends without having to worry about their parents commenting on their posts and seeing what they’re up to. Taking it off the market means more users will eventually be led back to Facebook’s arms.

WhatsApp has only raised $8 million from Sequoia Capital, but we don’t have any idea how much it earns from its annual subscription fees. Still, this revenue is probably quite considerable if Facebook is prepared to shell out a massive amount of cash and stocks to get its hands on it.

If you’re still wondering how much $19 billion is, here’s TechCrunch’s take on things:

$19 billion is 4x the market cap of BlackBerry; approximately one-third the market cap of Ford; 2.8x the market cap of GroupOn; effectively equal to the market cap of The Gap; slightly more than Sony’s market cap (around 10 percent); around three-fourths the market cap of Delta; 7.5 Mark Cubans; almost precisely one-third of HP’s market cap; 2 nuclear submarines; 62 percent of Twitter’s market cap; 76,000 trips to space on Virgin Galactic; almost 60 percent of Sprint’s market cap; and 25 Instagram acquisitions.

What happens next to WhatsApp?


As stated earlier, WhatsApp is only free to use for a year, after that you need to pay $0.99 to continue using it. With its acquisition, the service may now be offered free for life, but there could be one huge drawback: ads.

If you have noticed, most free apps and services are laced with tons of ads. If you want to get rid of them, you have to pay a fee. Facebook gets the majority of its revenue from ads and with the millions of WhatsApp users engaging with the service everyday, it looks like the perfect place to throw in some more of them. Unfortunately, if Facebook does put ads in WhatsApp, it may start losing subscribers even if the service becomes free for life.

Let’s just hope WhatsApp’s makers won’t let Facebook poison their app with ads.