Facebook Buys Whatsapp for $16 Billion

Posted on Feb 11, 2014
By Gaurav Aidasani

As per a filing on Wednesday, Facebook is all set to acquire Whatsapp, the much popular messaging application for a whopping sum of $16 billion in cash and stock.

After the rumors of Google also being interested in buying this messaging app in 2013, turns out that this is Facebook’s largest acquisition till date. As per the filing, the social media giant has agreed to pay $12 billion in stock and $4 billion in cash for the company. But that’s not all; it has also agreed to pay $3 billion more in restricted stock units to WhatsApp's founders and employees as part of the deal. So, this brings the deal total to a total of about $19 billion.

The messaging giant, founded in 2009 by former Yahoo engineers Jan Koum and Brian Acton, went on to become so popular that some were of the opinion that it could pose a threat to Facebook’s business. The app has replaced the age old SMS for many users by allowing free messaging across smartphone platforms. It has more than 450 million people who are using the app daily.

Mark Zuckerberg, the cofounder and CEO of Facebook said, “WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable.” He further added, “I've known Jan for a long time and I'm excited to partner with him and his team to make the world more open and connected.”

What followed the announcement was an investor call in which Zuckerberg added, “The growth rate they have today and the monetization that's early but promising and in place, we see a clear trajectory ahead and are excited to work together on this."

As opposed to Facebook, Whatsapp does not earn through ads. What it instead does is offers free services for the first year and later charges $0.99 per year for subscription after that. The founders of this messaging giant have established that they do not want to introduce advertising. However, this was re-iterated by Koum and Zuckerberg on the call.

"We think that for our product, advertising is not necessarily the right way to go," Koum said. "We think we have a very solid monetization system in place."

Facebook will pay a breakup fee of $1 billion to Whatsapp, if the deal does not work out, which is, incidentally, still more than the total amount of money Facebook paid to acquire Instagram. The stock of the social media pioneer faced decline by more than 4.5% after the announcement was made.
With more than 450 million users, Whatsapp is certainly larger than companies like Snapchat and even other social networks like Twitter or LinkedIn. Facebook was rumoured to offer Snapchat as much as $3 billion for acquiring it, in order to make a big acquisition in the messaging space.

With the deal finalized last weekend, Koum will be on the board of directors of Facebook as a part of the acquisition. As opposed to the way Instagram was handled, Whatsapp will operate independently.

The deal is approved by both the parties and is subject to regulatory approval now. In the later part of this year, Facebook expects to close this deal.