- How WhatsApp got $21 billion out of Facebook
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Facebook has agreed to acquire mobile-messaging app WhatsApp for as much as $US19 billion ($21 billion) in cash and stock, seeking to expand its reach among users on mobile devices.
The deal includes $US12 billion in stock, $US4 billion in cash and $US3 billion in restricted shares, Facebook said in a statement on Wednesday in the US (Thursday morning AEDT).
WhatsApp has more than 450 million members, with 1 million users being added daily, Facebook said.
"WhatsApp is on a path to connect 1 billion people," Facebook chief executive Mark Zuckerberg said. "The services that reach that milestone are all incredibly valuable."
The purchase would be the biggest internet deal since Time Warner’s $US124 billion merger with AOL in 2001.
"They seem to have made a pretty strong statement with this acquisition – that they are willing to broaden their portfolio of apps and not just put all of their eggs in one basket" said Debra Aho Williamson, an analyst at EMarketer. "Facebook has come to the realisation that it needs a portfolio of apps to reach people with different use cases, different demographics, or different ways of communicating."
Facebook, which acquired photo-sharing service Instagram for about $US700 million in 2012, is counting on applications beyond its main social network to reach more users on smartphones and tablets. WhatsApp competes with Snapchat, which rebuffed a $3.2 billion offer from Facebook last year, as well as services from Twitter and Kik.
"Facebook is clearly taking out one of its main competitors," said Paul Sweeney, a Bloomberg Industries analyst. "They are buying 450 million loyal users and an extraordinary growth story, but at a staggering cost."
California-based WhatsApp, which is popular in Europe and Australia, lets users send messages on mobile devices on different operating systems including Apple's iOS, Google's Android, Microsoft's Windows Phone and BlackBerry.
Unlike traditional text messages, which consumers pay for through their mobile plans, WhatsApp is free for the first year, and then costs 99 cents a year after that. It also competes with China's WeChat, South Korea's KakaoTalk, and Japan's Line, as well as Facebook’s own app, Facebook Messenger. Facebook's Instagram also launched its own messaging feature – Instagram Direct – late last year.
"They just took out their primary threat and they recognise that overnight it makes them the leader in the mobile messaging space," said Jim Patterson, CEO of Cotap, a messaging service for businesses. "It was clearly the first mobile app other than Facebook that was going to get to 1 billion users."
WhatsApp CEO Jan Koum co-founded the company with Brian Acton in 2009 after almost a decade as an engineer at Yahoo. Venture capital firm Sequoia Capital invested $US8 million in WhatsApp in 2011.
While Facebook has touted its progress adding more advertising revenue on mobile devices, Koum has been strict about keeping ads out of WhatsApp.
Koum said in a statement on the company's website that WhatsApp will remain autonomous and operate independently.
"WhatsApp's extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide," he said. "We're excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world.
"There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product."
Facebook also confirmed in a blog post that WhatsApp will continue to operate independently and retain its own brand.
"WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee. You can continue to use WhatsApp no matter where in the world you are, or what smartphone you're using. And you can still count on absolutely no ads interrupting your communication. There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product.
Zuckerberg first reached out to Koum in early 2012, when the two met for coffee at a German bakery in Los Altos, California, and ended up talking for more than two hours, according to a source with knowledge of the matter. They have since met frequently, going to dinner and on hikes, said the source, who asked not to be named because the process isn't being discussed publicly.
Koum went to Zuckerberg's house in Palo Alto for dinner on February 9, and the conversation became more serious. The two talked about how they could work together more closely on Zuckerberg's Internet.org initiative for connecting the world on mobile devices, and the conversation evolved into acquisition talks in the next 10 days, with Zuckerberg suggesting Koum join Facebook's board. On Valentine's Day, Koum came by Zuckerberg's house with chocolate-covered strawberries that the two shared as they hammered out pricing points, the source said.
The deal is the largest ever for Facebook, and prices WhatsApp at more than half of Twitter's market value. Facebook shares fell as much as 5.7 per cent to $US64.18 in extended trading after the acquisition was announced. They rose 1.1 per cent to $US68.06 at the close in New York.