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What you should know about Facebook’s acquisition of Whatsapp?

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#Whatsapp has been trending on Twitter and Facebook all day. Just a one line reasoning for the trending is,

Facebook acquires Whatsapp for $16 billion – $12 billion in stock, $4 billion in cash plus $3 billion in restricted stock.

Whatsapp

The restricted stock will vest over four years once the deal closes. Earlier Facebook had acquired Instagram for $715.3 million. But the more interesting news – the deal was planned around a frequent flier rewards miles air ticket.

In December 2013 Whatsapp’s co-founder Koum had said,

WhatsApp has “no plans to sell, IPO, exit, [get new] funding,” Koum said.

“Despite the fact that we’re able to monetize today, we’re not focused on monetization,” Koum said. “We view monetization as five, 10 years down the road. We’re trying to build a sustainable company that’s here for the next 100 years.”

There are people calling themselves “Facebook Nevers”. The growth of Whatsapp was bothering Facebook.

Having used both Viber and Whatsapp, I must say Whatsapp is a far simple tool, a lighter tool (yes the functionality of the two are different). Clearly, simplicity pays “handsomely”.

Blackberry will not be complaining as their stock went up by 6% yesterday (Feb 19, 2014). Many feel Google should have acquired Twitter to be a dominant player in the social media space.

Few talking points,

  • Launched in 2009
  • Founders: A Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton. The two were colleagues at Yahoo.
  • Current Valuations: Whatsapp $19 billion, Twitter $30 billion, Facebook $170 billion
  • Employee strength: WhatsApp 55 (32 engineers), Twitter 2,300, Facebook 6,300+
  • Monthly Active users: WhatsApp 450 million (70% active daily), Twitter 250 million, Facebook 1.2 billion (daily 61% active). The industry standard of daily active users is about 10-20%.
  • Whatsapp traffic: 50 billion messages a day, 600 million photos a day, 100 million videos a day
  • Images Processed: Whatsapp 600 million, Facebook 350 million, Instagram 55 million. Facebook owns about a trillion images a day post this acquisition.
  • Whatsapp daily sign ups: 1 million
  • Per-user cost for acquiring the company: $42 per Whatsapp user (very close to what Google paid for YouTube), $33 per Instagram user, $3 per Viber user
  • 35% of Facebook’s cash is being used for this deal
  • Employees hold 1% of the company stock, set to make $160 million
  • Founders view on advertisements: They described advertising as a “disruption of aesthetics”, an “insult to intelligence” and an “interruption” of a users train of thought.

WhatsApp Revenues?

WhatsApp does not sell advertising and has very little revenue. While I see everywhere “It charges users a flat fee of $1 a year to use the service, and the first year is free”, I recall paying $1 only for the first year.

While the revenues of WhatsApp may not be high but these texting apps have surely caused a huge dent in the revenues of telcos – about $33 billion a year ($54 billion by 2016).

There are many articles explaining the valuation.  See this one for a detailed one which says “To justify a $19 billion value for a company in equity markets today, you would need that company to generate about $1.5 billion in after-tax income in steady state.” But the discounted cash flow (DCF) has been challenged.

But then you get to read that the valuation was not high.

Sequoia hits it big

Sequoia invested about $60 million over the years, will take back about $3 billion. But more than the money Sequoia got a chance to get back at Mark Zuckerberg.

The blog post by Sequoia “Four Numbers That Explain Why Facebook Acquired WhatsApp” is interesting – 450, 32, 1 and 0.

  • 450 million monthly active users
  • 32 engineers
  • 1- Just 1 note on the desk which talks about the company (see image). After one year of free use, the service costs $1 per year — with no SMS charges
  • 0 marketing spend (their users did all the marketing for them, clearly speaks of their product)

Learnings from Co-Founders of WhatsApp

Learnings for me – focus, keep it simple, don’t give up. The note on co-founder’s Jan Koum’s desk is inspiring,

whatsapp note - image source Sequoia

WhatsApp In India

WhatsApp has about 35 million active users from India (Jan 2014). Viber has 4 million active users of their 16 million users in India.

Facebook had 93 million active users in India, of which 31 million mobile users visited Facebook daily (source December 2013 quarterly results). Twitter has about 25 million users in India.

Nielsen report states every 3 out of 4 smartphone owners use a chat app – WhatsApp has 76% reach, Facebook has 52% reach, Google hangouts has 25% reach, WeChat has 22% reach.

With the upcoming elections in India (April-May 2014) the usage of WhatsApp has increased in the political circles. Congress & BJP use WhatsApp to interact with their respective teams.

Also see,

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