Facebook spends big on WhatsApp

So Facebook has done it again. A spending spree it would seem.

You may go out and splurge on new shoes, or an outfit. What does Facebook do? They go drop a cool $19b on an app company.

For those who are interested, I wanted to drill down into why this company is so valuable to Facebook and what made the “WhatsApp” brand a worthwhile purchase.  When a company like Facebook makes a move, there’s usually a few spreadsheets and metrics that help them decide the numbers.  Let’s look into what I think those key numbers are.

What made WhatsApp worth $19b?

Firstly, let’s break it down.  $12b in cash + $4b in stock + $3b  in restricted stock options – that’s the exact deal.
Secondly, if you’ve not heard of it, WhatsApp Messenger is a cross platform mobile messaging app that allows you exchange messages without paying for SMS.

1. Users

It all comes down to qualified users.  The app is free for the first year and then $0.99 per year afterwards. With 400+ million users willing to pay, you’ve got yourself a qualified database of engaged users and Facebook loves users.  You’ve also got recurring revenue (the holy grail in 21st century business). If you do the maths, Facebook paid $40 per user, and I think that’s not a bad deal really.

2. Growth

Forbes reports that as of the latter half of 2013, WhatsApp was growing by an amount of 25 million users per month.  This is significant and likely the reason Facebook jumped on this now.

3. Stats don’t lie

50 billion: The amount of WhatsApp messages sent every day (more than double the quantity of SMS sent globally)
$0 : The amount WhatsApp has spent on marketing…ever
72%: The percentage of users engaging daily
$10b: The rejected offer from Google to acquire the company (reportedly)
$400M+: the current revenue based on every user paying $1 per year (that’s not bad at all)
50: The quantity of staff that WhatsApp employs (it’s a lean business model)

 

All in all, there’s quite a few reasons why this is a brand that Facebook wants under it’s belt as it continues its mission to to achieve world domination profitably. There are those out there that think that WhatsApp could probably have waited another 12 months and asked for more considering it’s continued growth.

As the technology industry continues on this trajectory, I’d expect to see quite a few more of these stories and its interesting to track the viral nature of these apps who don’t market.  The power of globalisation is exponentially accelerating these business models and it’ll be interesting to see where this goes.