Facebook-WhatsApp: Show Me The Money

Social media platform Facebook has agreed a deal worth US$19bn for the acquisition of over-the-top (OTT) messaging mobile application WhatsApp. The amount is comprised of US$4bn in cash and approximately US$12bn of Facebook shares, with an additional US$3bn in stock to be distributed to WhatApp's founders and employees at a later date. BMI believes the deal fits with Facebook's mobile strategy and examines some of the risks the company faces as it looks to recoup its investment. We do not expect to see large changes for WhatsApp over the next year or two, but pressure to monetise the service will mount over the long-term.

In filing to the US Securities and Exchange Commission (SEC), Facebook noted that WhatsApp had around 450mn monthly users, adding around 1mn every day and expects the application to reach 1bn in the next few years. The acquisition represents the largest amount paid by Facebook, dwarfing the US$1bn of cash and stock it agreed for photo-sharing service Instagram in April 2012, with the rapid growth rate in users as likely to be the main reason behind the high price. It is also possible that Facebook was competing against Google for WhatsApp, as reports in April 2013 suggested that Google was prepared to offer US$1bn. Facebook may therefore have been forced to offer a higher offer to ensure it captured the platform instead of Google, indicating the value it places in WhatsApp. This is evident by comparing the price to that paid by Japanese e-commerce company Rakuten for a similar OTT chat service Viber, earlier in February 2014 equalling US$900mn.

Why Did Facebook Acquire WhatsApp?

Facebook Becoming A Mobile Oriented Company
Mobile Advertising As % Of Total Ad Revenue, 2012-2013

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Related sectors of this article: Telecoms, Mobile
Geography: Global, Brazil, China, Germany, Spain, Portugal

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