Facebook to buy WhatsApp for $19bn

Price tag puzzles analysts; leads to questions over monetisation
Given that the WhatsApp service is free for the first year, after which it charges a mere $1 annual fee, questions have been raised over how the service would make money for Facebook.
Given that the WhatsApp service is free for the first year, after which it charges a mere $1 annual fee, questions have been raised over how the service would make money for Facebook.

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Facebook Inc is to buy messaging app firm WhatsApp for $19bn in cash and stock, Reuters reported.

The deal is valued at more than Facebook raised in its IPO and will see the social media giant part with $4 billion in cash, $12 billion in stock and $3 billion in restricted stock. The acquisition is expected to attract more young users to Facebook’s platform, as such users are increasingly favouring mobile messaging platforms over social media.

WhatsApp has proved to be a classic Silicon Valley runaway success, accruing 450m users in five years. Its simple instant messaging model made it the leader among a wave of similar smartphone apps. WhatsApp, Viber and Skype are mostly blocked by Gulf telecoms providers.

WhatsApp was founded by Ukrainian immigrant and college dropout, Jan Koum – now the company’s CEO – and Stanford graduate, Brian Acton. Facebook CEO Mark Zuckerberg yesterday said he hammered the deal out over dinner with Koum just 10 days earlier.

"No one in the history of the world has ever done something like this," Zuckerberg declared.
Many analysts expressed puzzlement at the price Facebook will pay. The deal amounts to just over $42 per WhatsApp user, where Japan’s Rakuten bought Viber for $3 per user, in a $900m deal.

In addition, Zuckerberg and Koum announced that WhatsApp will continue to operate as a separate entity and retain its no-ads policy. Given that the service is free for the first year, after which it charges a mere $1 annual fee, questions have been raised over how the service would make money.

"This is a tacit admission that Facebook can't do things that other networks are doing," said Morningstar analyst Rick Summer, pointing to the fact that Facebook had photo-sharing and messaging before it bought Instagram and WhatsApp.

"They can't replicate what other companies are doing so they go out and buy them. That's not altogether encouraging necessarily and I think deals like these won't be the last one and that is something for investors to consider."
 

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