In an unprecedented move that shocked many in the financial world, social media powerhouse Facebook (FB) has purchased WhatsApp, the popular social messaging app, for an astonishing $19 Billion. Yes, that’s billion with a ‘B;’ the acquisition will cost Facebook an estimated 10% of their outstanding shares. Many analysts have critiqued the purchase, citing Facebook’s seeming lackluster in-house innovation, and the fact that WhatsApp users won’t necessarily transition to the invasive Facebook platform. Regardless of all the speculation, the question remains: is WhatsApp really worth $19 Billion? In short, most definitely.
Why? WhatsApp is special because it uses Wi-Fi and 4G LTE to send messages, thus eliminating the need to buy an unlimited text-messaging plan from a cell service provider. Furthermore, it is also widely popular because it’s the cheapest way to message people overseas. In fact, it has become so widespread that the Dutch have created a verb in its honor, “WhatsAppen,” which means: to send a WhatsApp Message.
Likewise, given its cult reputation, WhatsApp continues to exponentially grow in the developing social messaging market; twice as many messages are now sent over the web compared to regular SMS text messages, and WhatsApp continues to dominate this arena (having doubled its number of users in the past year alone). Surprisingly, the app has most been used in Europe, which is likely attributed to the high costs associated with texting and calling abroad. This distinct quality of WhatsApp, in addition to the company’s technology, made it an extremely valuable acquisition candidate for Facebook, which paid $19 billion for the platform in a mix of cash and restricted stock.
Needless to say, this has been the biggest purchase over Facebook’s short existence. In 2012 Facebook spent a mere $1 billion to buy the now incredibly popular photo sharing application, Instagram. In 2006, Google bought the main contributor to the online video revolution, YouTube, for a cool $1.65 billion. Both of these transactions appear miniscule compared to the valuation of WhatsApp. However, when looked at on a per-user basis, all three purchases are fairly similar (in fact, WhatsApp isn’t even the most expensive).
The main factor behind WhatsApp’s seemingly outrageous valuation is linked to the amount of users Facebook stands to gain. WhatsApp is unique in that it has over 450 Million active users, and that it still continues to rapidly grow. When comparing the price-per-user cost of past deals, the WhatsApp valuation is actually completely reasonable. The deal cost Facebook a meager $42 per active user (I think we’re worth more). And yes, this may be more than the $28 per user that Facebook shelled out in its Instagram deal, but it is actually less than the $48 per user that Google paid for YouTube.
In all fairness, only time will tell if WhatsApp is the social media powerhouse Facebook believes it to be. However, WhatsApp could just as easily end up among the ranks of MySpace and Friendster – the difference being it sold at its peak instead of suffering a gradual, painful demise.