Facebook agreed to acquire the popular messaging service WhatsApp for a total of $16 billion and spend one third of its cash and dilute shareholders by 8%.
Facebook will pay $4 billion in cash and $12 billion in company’s stock for the rapidly growing cross-platform mobile messaging company that is very popular outside the U.S.
Facebook also agreed to pay $3 billion in restricted stock units that will vest over the next four years.
WhatsApp valuation at $40 a user is not cheap even when compared to previous deals done in this space.
Facebook acquired Instagram for $30 per user and the service was largely viewed as a way to sell more ads, Skype was sold to eBay for $48 a user but it failed to live to its expectations and did not fit with the e-commerce goals of the online platform operator.
Facebook is valued in the public market at $140 a user.
Focus on Better Product Development
The Mountain View, California based company was started by two Yahoo executives who focused on providing messaging services regardless of the operating system and the location of the user.
The company was started in 2009 by two founders Jan Koum and Brian Acton who dedicated the company resources on providing a reliable, clean and ad free messaging platform.
The company founders, unlike its competitors eschewed media attention and focused on providing an application that is easy to use. WhatsApp, when started faced more than two dozen competitors around the world and most focused on ad based revenue model.
WhatsApp has become popular text messaging service, the way Skype has become voice and video communication service using Internet as the backbone.
WhatsApp has more than 450 million “active” users and the company reached that user base faster than any other company in history.
In the last nine months the company has added 200 million active users, ahead of Twitter and continues to add more than one million people a day, according to only outside investor Jim Goetz at Sequoia.
Sequoia Capital invested $8 million in the company in 2011 and later led a round of $50 million for a stake little over 15% which is now worth $3.5 billion.
Only 32 engineers support the entire WhatsApp service and the company has only 55 employees operating from an unmarked office and the company does not even have a marketing or press relations.
The entire growth of the company has been supported by the word of mouth and user interaction and the company’s raid on the users contact list on the phone.
The service costs 99 cents a year, after one year of free use and the service is more popular in Europe and developing countries where telecom carriers charge for instant messaging.