Facebook Inc. will write the biggest cheque in its history for a chance to rule the world of instant messaging.
The social network said on Wednesday that it will pay almost $20-billion (U.S.) to acquire WhatsApp, one of the most popular mobile messaging companies in the world. With almost 500 million users, WhatsApp gives Facebook a loyal, global user base that sends about 20 billion instant messages every day from their mobile devices.
In total, Facebook will spend about $19-billion on the deal – $12-billion in Facebook shares, $4-billion in cash, and another $3-billion in restricted stock units payable to WhatsApp employees.
The sum, astronomical even by technology industry standards, will give Facebook control of a company whose service is undeniably popular and rapidly growing, but appears to generate no profit.
"Facebook has been on a journey toward becoming a mobile company," Facebook chief executive officer Mark Zuckerberg said. "WhatsApp is the only widely used app we've ever seen that has more engagement and a higher percentage of people using it daily than Facebook itself."
The deal is, by a very wide margin, the biggest in Facebook's short history – and one of the biggest in the entire social media industry. The company is paying for WhatsApp roughly 16 times what it paid to acquire the photo-sharing service Instagram in 2012 (not including the restricted stock units). Indeed, Facebook will have to pay WhatsApp roughly $2-billion in termination fees alone, should the deal fail to gain regulatory approval.
Facebook said the deal is expected to close later in the year, but would not offer a specific date.
WhatsApp has roughly 450 million users, of which roughly 70 per cent are active on any given day. About one million new users sign up for the service every day. WhatsApp's users also upload about 600 million photos, 200 million voice messages and 100 million video messages daily – and all of those numbers are up 100 per cent in the last year.
The size and growth of the startup is staggering not only in absolute terms and relative to WhatsApp's competitors – BlackBerry Messenger, for example has 80 million active users – but also given the company's own age and size. Founded in 2009, WhatsApp has only 55 employees.
The deal appears to put a rich valuation on instant messaging apps. In after-hours trading, BlackBerry shares were up nearly 5 per cent on the news, while Facebook shares dropped by the same percentage.
Although Facebook has more than twice as many users, WhatsApp's loyal following is arguably worth a premium to the social network, given that a significant segment of the messaging application's users are younger and more engaged with mobile technology than Facebook's users. Researchers with the Global Social Media Impact Study last year pointed to a migration of younger users from Facebook to WhatsApp as a significant trend in the social networking industry.
Facebook's willingness to pay a massive price for WhatsApp appears to have less to do with absolute user numbers and more to do with user engagement. According to the social network, WhatsApp users now generate a combined message volume that is almost as large as the global telecom text-messaging industry – by some estimates, about 7.1 trillion messages a year.
"WhatsApp's extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide," said Jan Koum, WhatsApp's co-founder and CEO, who will now sit on Facebook's board of directors. "We're excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world."
It is unclear whether WhatsApp, which doesn't run ads on its service, actually makes any money. On a conference call where he faced several analyst questions about monetization, Mr. Koum made it clear that profit is not a near-term concern.
"Monetization is not going to be a priority for us," he said. "We're focused on the growth."