FACEBOOK stunned Wall Street last night when it announced it was to buy the messaging service WhatsApp for $19bn (£11.4bn).
Mark Zuckerberg's social networking site will pay a mixture of cash and stocks for the company, in a move that makes instant billionaires of WhatsApp's founders. The deal will consist of $12bn in Facebook shares and another $4bn in cash, plus $3bn in restricted shares to be paid out to WhatsApp's executives at a later date.
The move is Facebook's biggest acquisition yet. Last year, the social network bought the photo-sharing app Instagram for $1bn. It's also the biggest-ever buyout involving a tech start-up, easily trumping the $8.5bn paid by Microsoft for Skype in 2011.
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So what's up with the move for WhatsApp? Can a tiny company of 50 employees really be worth $19bn?
What is WhatsApp?
The five-year-old messaging application allows users to send free text messages to one another, as well as pictures, audio messages and videos. The service is free for the first year and then costs 99 cents per year after that. Unlike many other social media services, the fact that the company already has a revenue stream helps to justify its high price tag.
Is it really worth that much?
The messaging service has over 450 million users and is still going through a period of explosive growth – the company is said to take on a million new users every day. Crucially, its users are very loyal, with 70 per cent using the service daily, The Guardian reports.
"WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable," said Zuckerberg, Facebook founder and CEO. "I've known Jan [Koum, the founder of WhatsApp] for a long time and I'm excited to partner with him and his team to make the world more open and connected."
Why does Facebook want to acquire it?
Facebook is working hard to expand its mobile businesses. The purchase of companies like Instagram and Whatsapp offers Facebook greater penetration into the expanding mobile market. Whatsapp is particularly successful in Europe and Latin America where market penetration is believed to be as high as 80 per cent in Brazil, Germany, Portugal and Spain.
Facebook may also be anxious to neutralise competition from younger, faster-growing social networks. "The deal gives Facebook access to the 450m people who use WhatsApp's service every month," says The Telegraph, "effectively turning one of its biggest potential threats into a valuable ally".
The app's developers Jan Koum and Brian Acton, who was turned down by Facebook when he applied for a job there in 2009, will join the board of Facebook after the deal goes through, The Times reports. "We're excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world," Koum said yesterday.
