FB “likes” Whatsapp, buys it for $19 billion

It was started by Ukranian and US born former Yahoo executives in 2009 and named so because it resembled “what’s up?”. With their motto being “..to build a really cool product that people would use every single day..” , they seem to be on their path of achieving their motto with nearly 45 cr users , 70% active daily users. 10 lac users adding everyday and nearly $ 20 million in revenues. Advertising revenues are nil , what with its founders averse almost hating them in line with their motto of keeping their product “cool”. Of it 50 odd employees 32 are software engineers and thus with a user base of ~45 Cr users each of its engineers service more than a crore users.

Whatsapp is essentially a mobile messenger app tht allows users to chat with users online, send messages to offline users, know when users were last online, share photos / videos almost instantaneously, know their ” statuses”, even send audio messages etc. 

Lets look at FB. Started out in 2004 by zuckerburg, saverin and moskovitz primarily as a social networking site. There were people like former napster founder parker and some VC`s who jumped in slightly later. Over time fb developed an inbuilt fb messenger app and acquired instagram (photosharing) in 2011 for $ 1 billion. It tried acquiring snapchat last year for $ 3 billion. In zuckerburg`s words they have started “thinking mobile” all the time. 

To cut the chase short, Whatsapp is what FB wants to be, a collection of apps, focused on the mobile platform with high user engagement. 

What about the deal value? An astonishing $ 19 billion ( $4 billion cash, $12 billion in stock, $3 billion in restricted stock) for almost negligible revenues or profits. So is it all  castles in the air? Not quite, we saw how whatsapp fits in FB`s overall scheme of things. But is that enough to justify such value ( only 13 indian listed companies command higher valuations that have been around for ages). Well, the answer really lies in who was wooing whatsapp before FB snapped it. Google. Larry Page led google was chasing it. It fit googles strategy since google didnt have a messenger app. Although , google chat was decent messaging app it had modified it to the hangout version which really didnt take off. Already google controls the OS end of the mobile ecosystem. Buying whatsapp would have given it foothold in thr messenger space & allow it to take on FB. 

Thus, by buying whatsapp, FB is indeed thwarting Google in the war to win mindshare. Its simply not PV of future cashflows. Its a calculated gamble on the future technology ecosystem.


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