Is WhatsApp Really Worth $19 Billion?
Anyone interested in social media or technology will be well aware of what happened last week. Facebook acquired messaging app WhatsApp for $19 Billion but, is it really worth it?
First things first, what many people will not realise is that Facebook didn’t pay $19 Billion in CASH for WhatsApp. Just like their Instagram acquisition, Facebook paid some in cash and the rest was through stock with additional stock to be given to founders and employees over a four year period so to break it down for you; Facebook paid $4 Billion in cash, $12 Billion in Stock and a further $3 Billion in restricted stock. WhatsApp co-founder and chief executive Jan Koum will also join Facebook's board as part of this deal.
The idea behind the Facebook WhatsApp partnership was to allow WhatsApp to grow and expand, offering users a communication service that is as fast, affordable and personal as possible.
According to WhatsApp, the “partnership” will not affect WhatsApp services in any way however, we soon realised this wasn’t the case as last weekend there were messaging problems for a lot of users for at least four hours. Does this have anything to do with Facebook? Who knows. It does, however seem like a coincidence.
Just last year Facebook made around $2.2 billion from ad revenue in Q3 of 2013 alone, however since acquiring WhatsApp, Facebook’s Shares slumped 4.8% to $64.80 in after-hours trading following the social network’s deal to acquire the smartphone-messaging app. Just as with the acquisition of YouTube by Google for $1.65 billion or Facebook's purchase of Instagram for $1 billion, many people simply have a hard time wrapping their mind around an acquisition of a service that doesn't fit with traditional valuation principles.
So, is WhatsApp really worth $19 billion? Probably not however, when you want something, you are willing to pay a lot of money for it and $19 billion is a lot of money to pay for an app that only generates revenue from a small yearly fee.
When looking at price-per-user from acquisitions over the past decade and taking into consideration Yahoo's acquisition of Broadcast.com for nearly $11,000 per user, what Facebook paid for each WhatsApp user is solidly in the middle of the pack at $42, above Instagram's $28 cost per user and Tumblr's $33 per user (acquired by Yahoo!), but below the $48 or so Google paid for each YouTube user back in 2006.
This doesn’t however deviate from the fact that Facebook did have competition from Google and Apple for WhatsApp and for that reason alone, regardless of the actual cost, it makes the deal even more sweeter for Facebook.
So, in my opinion, yes... WhatsApp is worth how much Facebook paid for it however, we are yet to see any plans around how Facebook will monetise WhatsApp and that, will be very interesting to see indeed.