A move that can be termed as surprising, if not shocking, Facebook Inc announced on Wednesday afternoon that it was acquiring WhatsApp for $19 billion in stock and cash. WhatsApp is a world leader in mobile messaging over the internet with a subscriber base of about 240 million spread mostly in Europe, Latin America and India.
The purchase price looks crazy high when you consider that WhatsApp messaging service is just a 5 year old startup with only 55 employees on board. What’s more surprising is that the WhatsApp deal is worth more than what Facebook raised in its own IPO. The deal price also outranks other acquisitions of startups that has happened in recent years, including Microsoft’s buy of video calling application Skype for $8.5 billion or Facebook’s own buy of photo sharing application Instagram for $1 billion.
WhatsApp was started by a Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton. In almost no time, WhatsApp saw a jump in subscriber base rising to 450 million users in five years and adding another million daily.
Speaking on the acquisition, Mark Zuckerberg, Facebook founder and CEO, said,
“WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,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.”
Jan Koum, WhatsApp co-founder and CEO, said,
“WhatsApp’s extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide. We’re excited and honored to partner with Mark and Facebook as we continue to bring our product to more people around the world.”
The deal will help Facebook reinvent itself and extend its reach to new users, especially the teens who drifted away from the social network in favor of WhatsApp and other messaging service. Amid the fear that post acquisition Facebook would introduce advertisements to WhatsApp to increase the revenues, Mark Zuckerberg said that he personally doesn’t think that ads are the right way to monetize messaging systems.
However, Wall Street investors did not sound too enthusiastic about WhatsApp acquisition of Facebook and sent Facebook shares down 5 percent following the purchase news.