Fri, Feb 21, 2014 - Page 15 News List

Facebook to purchase WhatsApp

INHERENT WEAKNESS:An analyst said the US$19 billion deal is a tacit admission that Facebook cannot do the things other networks are doing, so they go out and buy them

Reuters

Facebook chief executive Mark Zuckerberg speaks to reporters during a press event in Menlo Park, California, on April 4 last year.

Photo: Reuters

Facebook Inc is buying mobile-messaging start-up WhatsApp for US$19 billion 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 US$4 billion in cash, US$12 billion in stock and US$3 billion in restricted stock that vests over several years. The WhatsApp deal is worth more than Facebook raised in its own initial public offering 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 start-up 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.

WhatsApp is 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 (騰訊) WeChat, offer games or even e-commerce on top of their popular messaging features.

The deal provides Facebook entree to new users, including teenagers 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.

“The right strategy is to continue to focus on growth and product,” Zuckerberg said.

Zuckerberg and Koum said that WhatsApp would 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 a year ago with a multibillion-dollar acquisition offer from Facebook. “Facebook is more about content and has not yet fully figured out communication.”

Even so, many balked at the price tag.

Facebook is paying US$42 per user with the deal, dwarfing its own US$33 per user cost of acquiring Instagram. By comparison, Japanese e-commerce giant Rakuten just bought messaging service Viber for US$3 per user, in a US$900 million deal.

Rick Summer, an analyst with Morningstar, warned that while investors may welcome the addition of such a high-growth asset, it may point to an inherent weakness in the social networking company that has seen growth slow in recent quarters.

“This is a tacit admission that Facebook can’t do things that other networks are doing,” Summer said, pointing to the fact that Facebook had photo-sharing and messaging before it bought Instagram and WhatsApp. “They can’t replicate what other companies are doing, so they go out and buy them. That’s not altogether encouraging necessarily, and I think deals like these won’t be the last one and that is something for investors to consider.”

Venture capitalist Sequoia Capital, which invested in WhatsApp in February 2011 and led three rounds of financing, holds a stake worth about US$3 billion of the US$19 billion valuation, according to people familiar with the matter.

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