Facebook in $19b WhatsApp deal

Source:Global Times-Agencies Published: 2014-2-21 0:23:01

Facebook will buy fast-growing mobile-messaging startup WhatsApp for $19 billion in cash and stock, with analysts believing that Facebook's purchase of WhatsApp might compress the expanding presence of WeChat, one of the world's top mobile chat services, outside of China.

The transaction involves $4 billion in cash, $12 billion in stock and $3 billion in restricted stock that vests over several years.

The WhatsApp deal is worth more than what Facebook raised in its own IPO and underscores the social network's determination to win the messaging market.

Founded by a Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton, WhatsApp is a Silicon Valley startup fairy tale, rocketing to 450 million users in five years and adding another million daily.

"No one in the history of the world has ever done something like this," Facebook Chief Executive Mark Zuckerberg said on a conference call on Wednesday.

Zuckerberg, who famously closed a $1 billion deal to buy photo-sharing service Instagram over a weekend in mid-2012, revealed on Wednesday that he proposed the tie-up over dinner with CEO Koum just 10 days earlier, on the night of February 9.

WhatsApp was the leader among a wave of smartphone-based messaging apps that are now sweeping across North America, Asia and Europe.

Although WhatsApp has adhered strictly to its core functionality of mimicking texting, other apps, such as Line in Japan or Tencent's WeChat, offer games or even e-commerce on top of their popular messaging features.

The deal provides Facebook entry to new users, including teens who eschew the mainstream social networks but prefer WhatsApp and rivals, which have exploded in size as private messaging takes off.

The purchase was not targeted at WeChat, but WeChat's commercialization model and the benefits it brought to Tencent has exerted some influence on the surprisingly high valuation of WhatsApp, Zhang Yi, CEO of the Shenzhen-based Internet research company iiMedia Research, told the Global Times.

With 270 million active users, Tencent has been putting great effort into broadening its overseas market, including inviting soccer superstar Lionel Messi as a product ambassador in 2013 and encouraging American users to connect their WeChat account to their Google account by offering gift cards in January.

However, overseas development remains hard due to the differences in user groups and cultural backgrounds, plus Facebook's purchase of WhatsApp might also compress WeChat's expanding space outside China, said Zhang.

Despite the subtle link, Zhang noted that the major target for Facebook this time was to set up a strategic roadmap to open up overseas markets to compete with popular products such as WeChat and Line.

"Insufficient share on mobile terminals is a congenital deficiency for PC-based social media platforms such as Facebook, and the purchase would help it find a way to penetrate millions of mobile users," said Zhang.

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