The big deal
The social networking giant announced acquiring mobile instant messaging application WhatsApp for US$19 billion in cash and stock. Prior to this, Facebook’s costliest acquisition was Instagram, which the social networking giant bought for US$1 billion.
According to the deal, the transaction will be completed in US$4 billion cash, US$12 billion in stock and US$3 billion in restricted stock that vests over several years. The transaction is expected to close this year and the cash consideration will be funded from cash balance of US$11.5 billion as of December, 31, 2013.
As per the terms of the transaction, WhatsApp shareholders and employees will own 7.9 per cent of Facebook. WhatsApp Founder Jan Koum will be joining the Facebook board.
On the company blog, Facebook Founder and CEO Mark Zuckerberg said, “Our mission is to make the world more open and connected. We do this by building services that help people share any type of content with any group of people they want. WhatsApp will help us do this by continuing to develop a service that people around the world love to use every day.”
WhatsApp was founded by college dropout Jan Koum and Stanford alumnus Brian Acton. The mobile messaging app has 450 million monthly active users, with nearly 70 per cent active every day. The app claims to receive nearly one million new registered users per day and is apparently the fifth most downloaded app on Android devices. The messaging app had received a funding of US$8 million from Sequoia Capital in 2011.
Marriage of blue and green!
WhatsApp was founded in 2009 and was focused on offering a BBM (BlackBerry Messenger) like service which would work across all OS. Facebook already has its Messenger and it has made it clear that the application will function as an independent entity like Instagram, thus making the thought process behind the acquisition a little bit hazy.
Facebook trying to get younger?
The social networking website recently celebrated its 10th birthday. A recent report suggested that since the website became popular, it has been getting a number of users from above the 40 plus age group. A factor, that makes youth not want to spend as much time on the website, with adults having a view of their activities.
With the emergence of mobile messaging apps as the first tool of communication among youth, Facebook certainly could be trying to consolidate its offering in that area.
Mobile ad revenues
In its Q4 2013 earnings, Facebook reported earning 53 per cent of its ad revenue from mobile, which is nearly US$1.37 billion of its US$2.59 billion revenue from the quarter. In Q3 2013, the social media giant had reported 49 per cent of its ad revenue coming in from mobiles.
While Facebook’s revenue from mobile has been increasing, the social network has been facing stiff competition on the small screen from mobile messaging apps. Adding WhatsApp to its mobile portfolio strengthens Facebook’s mobile offering and consolidates the clicks it had been losing to the chat app.
Keeping competition in check
A view of Facebook’s past acquisitions including Instagram could be the social networking website’s efforts in keeping competitors at bay. WhatsApp and Instagram – both had the potential of emerging as independent strong platforms that could at some point prove serious threat to Facebook.
Facebook has been sitting on a burning stove ever since its IPO move. The website had been valued at US$104 billion at the time of the IPO, but it managed to raise US$16 billion. Since then, it has actively been acquiring fast growing platforms.
For WhatsApp, the messaging app grew on its ‘No ads, no games, no gimmicks’ and the same rule is now taking it to Silicon Valley. Till WhatsApp’s green icon does not turn blue or it does not stop evolving like it did in its independent days, the messaging app is safe to make the transit.
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