Facebook Buys WhatsApp For 19 Times The Price Of Instagram

Facebook says it has wrapped up its landmark $19 billion acquisition of WhatsApp, a deal that was hashed out in Mark Zuckerberg’s house over the course of a few days in February and sealed over a bottle of Jonnie Walker scotch. WhatsApp has continued to run its operation completely independently since then, but the closing of the deal marks the start of a gradual integration as Facebook gives the world’s biggest mobile messaging service legal and administrative support and — eventually, we can presume — finds new ways to monetize the company it spent more than Iceland’s GDP on.

As part of the deal, WhatsApp co-founder Jan Koum has been appointed to Facebook’s board. Mr. Koum will remain chief executive of WhatsApp, receiving $1 in annual base salary and restricted stock units worth nearly $2 billion. European Union regulators greenlighted the acquisition on Friday, clearing the way for a deal that had been fiercely opposed by Europe’s telecom industry.

Fortunately for those parties, the value of Facebook’s shares are now higher than they were when the deal was announced in February, notes Re/code’s Peter Kafka, making the deal worth around $21.8 billion.

WhatsApp makes money by charging a $1 a year subscription in a handful of countries that have clear carrier billing systems and where credit card penetration is high, bringing in about $20 million in annual revenue, according to Forbes’ estimates. That’s not enough to justify a $19 billion price tag, so Facebook is almost certainly looking at other ways the messaging service could make money.

Facebook has bought messaging app WhatsApp in a deal worth a total of $19bn (£11.4bn) in cash and shares.

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The deal to buy it includes $4bn in cash and approximately $12 billion worth of Facebook shares, plus an additional $3 billion in stock to WhatsApp's founders and employees at a later date.

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The acquisition of the hot messaging service with more than 450 million users around the world stunned many Silicon Valley observers with its lofty price tag.

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“WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,” said Mark Zuckerberg, Facebook founder and CEO in a statement.

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It makes money by charging users a subscription fee of $1 per year, although it offers a free model as well.

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WhatsApp allows users to send messages over internet connections, avoiding text messaging fees. The company claims it is currently registering one million new users a day.

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On a conference call to discuss the deal, WhatsApp co-founder Jan Koum says he plans to operate the firm "independently and autonomously". He will also become a member of Facebook's board of directors.

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"We're excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world," Mr Koum said in a statement.

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"You can continue to use WhatsApp no matter where in the world you are, or what smartphone you’re using. And you can still count on absolutely no ads interrupting your communication."

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"There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product."

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The Facebook founder said he believed WhatsApp was on track to have a billion users, but insisted he had no plans to place advertising on WhatsApp's interface, saying he did not think ads were the best way to make money from messaging systems.

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It had also reportedly offered $3bn to acquire photo messaging service Snapchat.

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