Smart Move for Facebook to Buy WhatsApp for $19 Billion?

I couldn’t resist, I had to say something about all the fuss surrounding the $19 billion WhatsApp buyout. I personally think Facebook made a savvy, strategic business move. Sure $19 billion, yes with a ‘b’, is a ton of money, but when there’s a product like WhatsApp, the potential profits and untapped market share for Facebook is unbounded (not to mention Facebook’s tactical move in creating an ally with a strong industry competitor).

Sometimes it’s easy to forget that most of the people in the world don’t have access to the internet like those in the western world. Facebook’s CEO, Mark Zuckerberg, has plans to bring internet access to those people too, to everyone across the globe. And he believes acquiring WhatsApp will help, albeit not overnight, but at some point.

One of Facebook’s missions is to give people the power to share content while making the world a more open and connected place. To do this, Facebook not only provides a product where people can connect with old and new friends, family members, and companies, Facebook also creates a place for people to discover what’s going on in the world. In addition to the traditional Facebook user interface as we know it, along with Facebook’s Internet.org project, you may want to check out Facebook’s newly released app, Paper, which beautifully exemplifies their mission to further connect the world. Paper is a simple, clean app, reimagining the traditional Facebook News Feed while integrating a featured news section where individual’s can browse stories of interest.

WhatsApp shares a similar mission to Facebook — to help families and friends stay connected around the world. So the question remains, was it worth $19 billion? $19 billion in cash, probably not a wise choice, but Facebook will pay the $19 billion as follows: $4 billion in cash, $12 billion in Facebook shares, and $3 billion in restricted stock units to be granted to WhatsApp founders and employees that will vest over four years, according to Facebook’s press release.

Included at the at the bottom of the press release, of course there’s a disclaimer about the potential of forward-looking statements. As you could probably guess, the goal of such a statement is to protect investors from seemingly ambiguous language in an effort to protect them from making poor investment decisions based on speculative statements. After watching The Wolf of Wall Street (in addition to my studies in financial markets), including a disclaimer is essential for a company to protect against certain shareholder actions as well as avoid potential fraud claims. But this of course gets me thinking…

One of the problems company’s often encounter when they go public is that their focus becomes too centralized on the short-term, often at the expense of the company’s long-term success. Was Facebook just buying out a competitor, like many seem to suggest, or was Facebook making a strategic, long-term investment? My vote is that Mark Zuck made this decision as a long-term investment in Facebook’s future to be more than just a social network for tweens, expecting mothers, and FarmVille enthusiasts (oh, and me). Who knows, maybe the $19 billion investment will turn out to be a flop, but acquiring WhatsApp is certainly a key stepping-stone for Facebook to begin tapping into the Asian and African markets.

How long do you think it will take Facebook to make back their investment, if at all? My guess is somewhere around 5 years, but who knows? According to an article on InformationWeek.com, WhatsApp reached 450 million users faster than any other social network company and signs up 1 million new users each day. Costing as little at $0.99 per year per user, at least we know the product will bring in a nice chunk of change each year. As for the long-term possibilities, it seems like we’ll have to wait and see what 450 million users, and growing, can provide for Facebook’s future success.

I guess the better question would be whether WhatsApp made a wise decision in selling to Facebook? Sure sounds like a smart move for WhatsApp especially in light of the Fortune report that WhatsApp turned down, dare I say, a mere $10 billion offer from Google. Let’s just hope that this is not a premonition of another bubble on our hands…

Originally appeared on Fiat Justicia RC.

Image: Wikimedia Commons / Craig Mayhew and Robert Simmon, NASA GSFC

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