Check out the real story of how Jan Koum built WhatsApp into Facebook's new $19 billion baby.
Facebook chief executive Mark Zuckerberg, announcing the largest acquisition ever by his social networking company, said it's worth paying as much as $19 billion to buy WhatsApp because the mobile messaging company is on a growth track that dwarfs anything else he has ever seen.
In a conference call with investors, Zuckerberg said the WhatsApp acquisition will "clearly help accelerate our progress" in expanding into mobile services. He talked about Facebook reaching as many as three billion users overall at some point. (It currently has about 1.2 billion users.) "Facebook has been on a journey toward becoming a mobile company," he added. WhatsApp is "the only mobile app we've ever seen" that has more growth in engagement than Facebook.
In a slide presentation accompanying the call, Facebook showed that WhatsApp's user growth in its first four years far exceeds the rates experienced by Facebook, Skype, Twitter or other well-known Internet properties that now command giant valuations. Alluding to Whats App's more than 400 million users at present, Zuckerberg said "no one in the history of the world has ever done something like this."
Zuckerberg waved off concern about the eventual need to ramp up revenue from WhatsApp, which is widely available now as a $1-a-year app. (The company employs just 55 people.) Zuckerberg argued that when Facebook reaches three billion users world-wide, revenue opportunities will be ample and obvious. Zuckerberg did signal that both he and WhatsApp co-founder and chief executive Jan Koum don't think that mobile ads are a particularly attractive way to make money from messaging.
Although WhatsApp is based in Mountain View, Calif., it "doesn't get as much attention in the U.S. as it deserves," Zuckerberg added, because much of its user growth to date has been in Europe, India and other non-U.S. markets.
Zuckerberg said Facebook will keep WhatsApp as an independent service. He said that approach has worked well for earlier, smaller acquisitions such as Instagram. The WhatsApp management team is expected to join Facebook, with Koum also winning a seat on Facebook's board. Koum declined to discuss his product road map in detail but promised that the product will evolve, with new features being added in the next 12 months.
The appeal of WhatsApp's rapid user growth wasn't lost on Sequoia Capital, which is the only venture capital firm to have invested in the messaging startup. In a blog post Wednesday, Sequoia drew attention to the start-up's ability to support such a large user base without needing to build up its engineering headcount or infrastructure proportionately.
Terms of the transaction call for Facebook to pay $16 billion in a mix of cash and stock for closely held WhatsApp, with as much as $3 billion more in potential additional payments related to restricted stock units that WhatsApp's founders will receive.
Facebook chief financial officer David Ebersman said he is confident that the transaction will win regulatory approval and will be completed later in 2014.
The WhatsApp transaction was announced after the close of regular New York Stock Exchange trading. In after-hours dealings, Facebook stock slipped about 2.7%, to 66.24.
