Sunday, 23 February 2014 21:32

The US$19 billion purchase of WhatsApp mobile messaging service by Facebook

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 The US$19 billion purchase of WhatsApp mobile messaging service by Facebook, currently trends as the largest purchase by a venture capital backed firm ever. Facebook closed an agreement to buy WhatsApp for a record breaking US$19 billion in a mix of cash and stock, a mega deal that dwarfs Facbook’s earlier purchase of Instagram for a mere US$ 1 billion in 2012. This by far has to be one of the largest deals concluded in a market where tech and mobile startups deal in astronomical prices.

WhatsApp who currently has 55 employees under its company lead by Jan Koum and business partner Brian Acton provides a disruptive model business leveraging mobile messaging as a replacement for phone carriers SMS services. Users of WhatsApp have grown to around 450 million per month. WhatsApp’s services are even more popular than the micro blogging platform twitter, who has around 150 Million users monthly and is valued at around US$30 billion since it publicly listed in 2013.

The deal includes USD$ 3 billion in restricted stock which is to be distributed to the employees and founders of WhatsApp over a four year period. In addition to making the founding partners billionaires, the deal marks a landmark win for Sequoia Capital, which is the only venture capital firm that decided to back WhatsApp. According to inside sources Sequoia Capital invested around $60 million for a stake valued at up to $3 billion of the deal value. The price and scale of this deal massively overshadows and ranks higher that all acquisitions of startups in recent time. Even Microsfts acquisition of communications and video calling company Skype at US$8.5 billion is outranked. This is however not Facbooks first attempt at purchasing other messaging systems with the failed attempt to acquire Snapchat for around US$3 billion in 2013.

However what is not quite sure is how much WhatsApp is generating in revenues. So far the company has not commented on its sales publicly. What we do know is that the company charges around 99 cents a year, after a user completes one year of free access. So far we have not seen any advertsisng on the WhatsApp platform, but that doesn’t mean it isn’t possible in the future.

However Facebook Chief Executive Mark Zuckerberg released a statement on Facbook saying “WhatsApp will continue to operate independently within Facebook. The product roadmap will remain unchanged and the team is going to stay in Mountain View. Over the next few years, we're going to work hard to help WhatsApp grow and connect the whole world. We also expect that WhatsApp will add to our efforts for, our partnership to make basic internet services affordable for everyone.” The full statement can be read here. Implying that he doesn't think ads are the right way to monetize messaging systems. Besides revenue this deal could help to bolster the social networking giant against the change in teenagers who are growing out of using it. Another interesting area to watch will be how Facbook leverages WhatsApp’s reach internationally, especially in markets like China where Facbook is currently blocked but WhatsApp is not.

Read 432 times Last modified on Monday, 24 February 2014 10:44
Brian Cohen

Brian is the Chief Editor at fundedflow