25 February 2014 | Team Tamar

How is WhatsApp worth $19 billion?


Last week,facebook-whatsapp-2000 Facebook announced the purchase of mobile messaging app WhatsApp for a staggering $19 billion. The deal was divided into several chunks, including $4 billion in cash, $12 billion in Facebook shares and an additional $3 billion in WhatsApp stock.

Unsurprisingly, the exorbitant deal has been widely discussed, with many experts questioning the valuation of the app as excessive. So how could WhatsApp possibly be worth so much money to Facebook?

A Good deal

Firstly, although it may be hard to believe, Facebook got a pretty good deal. Whilst WhatsApp currently has almost half as many members as Facebook, the mobile service was purchased for only 10% of Facebook’s value.

To put it differently, this means that Facebook paid an average of only $35 per user for WhatsApp, compared to $140 for Facebook.

Dominant force in the rise of mobile

In addition, the purchase of WhatsApp should be seen as part of Facebook’s attempt to become a dominant force (and not a victim of) the ever growing mobile landscape. Despite a recently turned-down $3 billion bid for photo sharing app Snapchat, Facebook’s slowly establishing itself in a market which until lately seemed a threat to its monopoly.

Hence, the late acquisition of WhatsApp adds to Zuckerberg’s portfolio, which already includes Instagram (purchased in 2012 for $1 billion) as well as his own products Facebook Messenger and, of course, the Facebook app.

A very promising channel..

On top of that, WhatsApp is the most rapidly growing mobile app on the market, which suggests the deal could be a very viable investment in the long term. As it stands, WhatsApp has over 450 million monthly users, 70% of whom use its services on a daily basis.

This is more than double the number of accounts Facebook had after its first 4 years, and 8 times more than Twitter over the same period. On top of that, WhatsApp gains over a million new users ever day, and has yet to introduce any form of advertising to its services, which undoubtedly could bring huge extra revenue. In short, WhatsApp is a very promising channel.

Incredibly valuable

All in all, it’s hard to assess whether the $19 billion figure is overpriced. Of course, one can never rule ouf the risk of WhatsApp declining into the next Bebo, and some might point and laugh once they realise Facebook valued a mobile app at a pricier rate than brands like Ferrari, American Airlines, ITV and Louis Vuitton.

However, there are so few precedents to compare it with, and it is hard to assess the real value of the app given how quickly it gained popularity. Only time will tell if Mark Zuckerberg’s acquisition, which he described as ‘incredibly valuable’, was business wisdom or a panic buy..

Team Tamar