San Francisco: Facebook Inc will buy fast-growing mobile-messaging startup WhatsApp for $19bn in cash and stock in a landmark deal that places the world’s largest social network closer to the heart of mobile communications and may bring younger users into the fold.
The transaction involves $4bn in cash, $12bn in stock and $3bn in restricted stock that vests over several years. The WhatsApp deal is worth more than Facebook raised in its own IPO and underscores the social network’s determination to win the market for messaging.
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 $1bn 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 Holdings Ltd’s WeChat, offer games or even e-commerce on top of their popular messaging features.
The deal provides Facebook entree 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.
“People are calling them ‘Facebook Nevers,’” said Jeremy Liew, a partner at Lightspeed and an early investor in Snapchat.
How the service will pay for itself is not yet clear.
Zuckerberg and Koum on the conference call did not say how the company would make money beyond a $1 annual fee, which is not charged for the first year. “The right strategy is to continue to focus on growth and product,” Zuckerberg said.
Zuckerberg and Koum said that WhatsApp will continue to operate independently, and promised to continue its policy of no advertising.
“Communication is the one thing that you have to use daily, and it has a strong network effect,” said Jonathan Teo, an early investor in Snapchat, another red-hot messaging company that flirted year ago with a multibillion dollar acquisition offer from Facebook.
“Facebook is more about content and has not yet fully figured out communication.” Reuters