Facebook buys WhatsApp

The big news this week was Facebook acquiring WhatsApp for a cool $19 billion dollars. That is $19,000,000,000. In full glory.

For perspective, it is exactly 19 times what Facebook paid for Instagram a while ago, or just a fraction of Facebook's current market cap. Whichever way you look at it.

Here is my take on the deal size.

Another way to look at this deal is to think that Facebook got a huge discount on WhatsApp valuation. WhatsApp would surely have gone public within the next few years and enjoy a market cap of at least $50 billion, if not more.

WhatsApp has got a lot of things going for it to support this kind of market valuation. Here are a few :-

  1. Crazy Growth : It has a huge reach with 450 million users. A good chunk of these are active every single day. And a million new users join the service everyday. This makes WhatsApp one of the fastest growing companies, ever. Pinterest who?
  2. Usage : People use WhatsApp on their mobile phones way more than any other app or service. As mobile phones take away more and more share of everyday time, this will only increase.
  3. Phone Numbers : The social graph at play in WhatsApp is already a validated and real graph. People join WhatsApp using their very real phone numbers. This social graph is as sticky as it gets.
  4. Opportunity : WhatsApp plays in the mobile messaging space, with data volumes rivaling telecom SMS traffic. As more users join the service and move to better phones, the volume of data will increase manifolds. All of this information put together, including text, voice, photos and videos, presents a treasure trove of information for an internet/mobile advertising company.

Facebook can become the Google Adwords of mobile, without selling a single ad on WhatsApp. All this data is golden for advertisers.

Considering these points, one can argue that WhatsApp got a fair price for what it has built and where it is today. Whether this price was fair for Facebook, only time will tell.