According to the filing, Facebook has agreed to pay $12 billion in stock and $4 billion in cash for the company. Facebook has also agreed to pay an additional $3 billion in restricted stock units to WhatsApp’s founders and employees as part of the deal, which would bring the total deal price to about $19 billion.
WhatsApp has approximately 450 million users. If you divide the acquisition cost by the numbers, you get about $42 per user, which in terms of recent social networks valuations, is reasonable. The question is, why did they pay so much money for an app? In my opinion, it comes down to the fact that Facebook has a recent history of being able to monetize mobile though advertising. Facebook’s stock price is up more than 60% since its IPO, largely due to its advertising revenue. With the launch of Instagram advertising (currently in beta), Facebook will now have one of the biggest advertising platforms in the world in the world.
“Facebook’s WhatsApp monetization through mobile advertising will be greater than $42 per user.”
With the massive pending shift of TV advertising towards digital advertising, Facebook is now well-positioned to compete more aggressively with Google for people’s eyeballs. Where are the eyeballs these days? On mobile devices, and that’s where the next great advertising boom will take place. All Facebook has to do is monetize each user for more than $42, to break even, which I think that they will do in 3-5 years. Facebook will also benefit from growing the WhatsApp user base and integrating all of that personal user data into its big Facebook artificial-intelligence-brain in order to sell us stuff we don’t even know that we want yet.
Speaking of Google, are they going to have to pay more than $42 a user to acquire SnapChat?