Facebook to purchase Whats app for $19 bn

K

koolin

Kulin Choksi
Read this news today morning and its been published in all the major business/non-business papers, Facebook to buy Whats app for $19 bn. The price which facebook is paying for purchasing whats app is staggering and is equivalent to $42 per whats app user, as compared to $3 per viber user paid by Rakuten, japanese firm who acquired viber for $ 900 million.

Friends, my sense of putting up this topic for debate is to really understand from the different opinion about the future prospect of this purchase and how strategic the decision wil turn out to be. Considering the number of users whats app has across the globe, how many of us really have paid for installing/using whats app on our phone? Considering the revenue for the existing paid customers for whats app, the value comes to around $1 billion dollar yearly, did mark really pay 19 times for this purchase, or his strategic thought is n times higher than the 19 times valuation

I throw this topic open for debate/discussion and to have views/analysis on this massive drug deal like purchase
 
Microsoft and yahoo missed the email bus to gmail.

Google missed the social networking bus from orkut to facebook. Its subsequent investment in google plus still hasn't seen traction. The world is going mobile and their android app investment has shown fruits which is why they are still relevant.

Facebook was missing the bus on mobile front and losing to instagram and watsapp. It's a very strategic move as starting anything from ground up would have been an very difficult process even with the funds they could deploy.

Facebook has been very shrewd in the dealings. Only 4 bn $ were paid in cash out of the 19 billion. The rest are facebook shares which is just paper value maintained by the wall street brokers.

Princeton now will have to revise its research paper : http://www.managementparadise.com/f...will-die-3-years-princeton-will-die-10-a.html

And the recent acquisition really goes on to increase company morale and clarifies the vision : http://www.managementparadise.com/f...erg-s-letter-one-day-before-facebook-ipo.html
 
Facebook was losing ground on teenage users

WhatsApp has a uniformed, global reach. 1 million downloads are happening every 24 hours with a total which is 450 million+ users worlwide

50% of users access Facebook via mobile now which generates 53% revenues. In this sense, acquisition of Facebook makes perfect sense

500 million photos are shared on WhatsApp everyday, whereas only 350 million images are crossing hands on Facebook! Photos is a major feature of facebook and it acquired instagram to keep that market happy. Whatsapp acquisition made a lot of sense in that aspect.

With WhatsApp acquisition, Facebook has a treasure full of data which can be used to further streamline advertisement network and bring in more cash. Remember google makes 12 billion in ad revenue from mobile every year.
 
@ Kartik - my only concern to this acquisition is the future cash flow which facebook is expecting after acquiring whats app. The projected target of users for whats app is estimated to be at 1 billion, so if we take out the first year which is free, and 99 cents for the following year, we are estimating the cash flow to stand at $ 1 billion, how would this justify the most expensive tech purchase.

@ Anjali - Numbers are true, i agree, however, when google makes 12 billion in ad revenue from mobile every year, whats app has a strict principle of no ads on its messaging service and i believe facebook wont try to change that principle because 30%u0025-40% of the users of whats app are happy and loyal due to the no ads principle.

The bigger question which arises out of these acquisitions is that are we heading to the tech bubble like the 2000's or are we seeing a new trend of having the big fist eat the small fish in the same pond.
 
Kulin, your concern is revenue model of whatsapp. That can easily change with a premium feature innovation that is charged for a few dollars a year. All that is require for facebook is to introduce a premium feature in whatsapp that people would happily pay for. And if that doesn't happen, there's always ads as a pivot :)

Instagram makes money by selling user photos and it's free :)

Whatsapp acquisition makes sense for facebook because if it would fall in anyone else's hands, it would predict doom for them and a sharp decline in stock would easily erode 19 bn and project a failing company image.
 
Some interesting facts -

Only 14 listed Indian cos valued higher than WhatsApp

How big is the Facebook-Whats App deal? Sample this: Only 14 Indian listed companies are valued more than WhatsApp. These big 14 are: TCS, Reliance, ITC, ONGC, Infosys, Coal India, HDFC Bank, Wipro, Sun Pharma, Tata Motors, HDFC, HUL, Bharti Airtel and ICICI Bank.

Companies like SBI, NTPC, HCL Tech, Larsen, Cairn India and M&M are valued less than WhatsApp as per Wenesday's closing price. Here's more: WhatsApp has been valued more than combined listed media and retail stocks of India.

WhatsApp is valued more than some of global corporate giants like: Alcoa (USD 12.2bn), Blackstone Group (USD 17.8bn), The Gap (USD 19bn), Harley-Davidson (USD 14.1bn), Marriott International (USD 15.4bn), Moody%u2019s (USD 17.08bn), News Corp (USD 10.27bn), Nielsen (USD 17.6bn), Tiffany & Co. (USD 11.4bn) and Xerox (USD 13.2bn).*

(*Source: NASDAQ)

(Also Check out: Before WhatsApp! 5 big ticket deals that changed social media)

Social media was abuzz on Thursday, after Facebook Inc announced it will buy fast-growing mobile-messaging startup WhatsApp for USD 19 billion in cash and stock, as the world's largest social network looks for ways to boost its popularity, especially among a younger crowd.

Facebook said on Wednesday it will pay USD 4 billion in cash and about USD 12 billion in stock in its single largest acquisition, dwarfing the USD 1 billion it paid for photo-sharing app Instagram. As part of the deal, WhatsApp co-founder and Chief Executive Jan Koum will join Facebook's board, and the social network will grant an additional USD 3 billion worth of restricted stock units to WhatsApp's founders, including Koum.

In event the merger fails to obtain regulatory approval, Facebook has agreed to pay a breakup fee to WhatsApp of USD 1 billion in cash and issue to WhatsApp shares of Facebook Class A common stock equal to another USD 1 billion.

Some interesting numbers:

USD 104 billion Facebook%u2019s valuation at the time of its IPO.

USD 16 Billion Amount Facebook raised in its IPO.

USD 25 Billion Twitter%u2019s valuation at the time of its IPO.

USD 2.1 Billion Amount Twitter raised in its IPO.

USD 1 Billion Price Facebook paid for Instagram in 2012.

USD 8 Million Amount of capital invested in WhatsApp in 2011 by Sequoia Capital.

400,000,000: The number of active users, according to a December blog post from WhatsApp.

450,000,000: The number of active users, today, according to Facebook%u2019s press release.

70%u0025: Percentage of users who are active on the app on a daily basis.

1,000,000: The company says it%u2019s adding more than 1 million new users a day.

945,000,000: Monthly active users on Facebook, as of Dec. 31.

230,00,000: Number of daily active users on Twitter.

50 The number of employees at WhatsApp

Five: WhatsApp is the fifth most downloaded app on Android devices.

Zero: Number of ads that appear on WhatsApp. The service doesn%u2019t sell ads
 
@ Kartik - Yes, my issue is with the revenue model of the future cash flow projected from the deal. For a moment, let's keep this revenue projection aside, how about answering these questions.

How fruitful has the instagram acquisition been for facebook ?
How lost does the other tech firm feels after letting whats app go to facebook ?
Among all the previous high worth deals, how many of them have really been worth of the amount paid?

I like the thoughts and numbers put forward on this topic....The numbers are staggering.

@ Anjali - There are only 14 companies who are valued higher than whats app is because facebook has agreed to pay $ 19 billion to acquire it and that's the benchmark or the worth we are assigning to whats app. The numbers eventually makes sense only after few years.

I am getting directed towards supporting this purchase by facebook, also at a time when facebook has $ 11.2 billion in cash, and the market cap worth $ 173 billion as of yesterday, this acquisition makes sense.

Aren't these numbers look like a rich man making purchases not worth of the amount, but he wont care as he is still left with a lot behind him?

What major change can we expect post this acquisition on whats app? design? built? games? number of photos to be shared can be more than 10? More larger data's can be shared?

Jan Kaum and Acton, founder of whats app have become multi-billionaries overnight....staggering
 
Kulin, valuations are always on future revenue projections when it comes to technology. When microsoft invested in facebook and acquired 8 percent stake for 350 million $, people said the same thing. They said ad revenue model is unsustainable and microsoft was foolish to acquire it. Microsoft makes good money and is emerging out to be a popular search engine with its bing integrated with facebook web search. Microsoft acquired skype and all recent acquisitions really go on to build better data and IP for the giants.

Google and Apple seem to be on the losing end with each acquisition by facebook and that's all that matters on wall street. That's where the major money is flowing.

Check http://metrics.infolinks.com/2014/0...il&utm_term=0_2bdc61d02f-33e5877704-113541873
 
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