Biz Break: Facebook buys WhatsApp for whopping $16 billion

By Jeremy C. Owens
jowens@mercurynews.com
POSTED: 02/19/2014 02:26:26 PM PST
UPDATED: 02/19/2014 03:38:51 PM PST

Facebook will buy instant-messaging giant WhatsApp for $16 billion. (Photo by Sam Azgor/Flickr)


Today: Facebook pays $16 billion for popular messaging app WhatsApp, its largest acquisition to date.

THE LEAD: FACEBOOK BUYS MESSAGING APP WHATSAPP FOR $16 BILLION


Anyone who thought that the $1 billion price tag on Facebook's acquisition of Instagram was shocking will want to shield their eyes from the social network's latest purchase: The Menlo Park company announced Wednesday that it has agreed to acquire Mountain View-based WhatsApp for $16 billion.


Facebook announced the move in a filing with the Securities and Exchange Commission and in a statement, which detailed a cash payment of $4 billion and a transfer of more than 180 million shares of Facebook stock, a total that added up to a value of $12 billion based on the stock's average closing price in the previous six trading sessions before Tuesday. In addition, Facebook promised to issue restricted stock units currently worth about $3 billion to WhatsApp employees, which could conceivably bump the price up to $19 billion or more.


"WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable," Facebook founder and CEO Mark Zuckerberg explained in a news release Wednesday.


Facebook has attempted to break into messaging applications before, with the release of Facebook Messenger, a stand-alone app that cloned the messaging service available on the social network's leading platform; Facebook said Wednesday that Messenger will continue to operate as well. Facebook also reportedly offered $3 billion last year for SnapChat, a photo-based messaging application popular with younger users, who are departing Facebook's social network as it becomes popular with their parents. That offer was rebuffed, but Facebook apparently decided to up its offer toward a different app.


WhatsApp and other messaging services -- such as Kik and WeChat -- have grown in popularity as teens use the mobile applications to avoid limits on texting set by wireless carriers, as the messages travel over the Internet instead of carriers' SMS platforms.


WhatsApp was launched in 2009 by two former Yahoo executives, Jan Koum and Brian Acton, who told The Mercury News in a rare email interview last year, "We are in the middle of the smartphone revolution, and it is just beginning."


In an environment where many similar mobile apps are free, WhatsApp charges a 99-cent annual subscription fee, but that has not stopped the company from gaining a legion of fans: Koum, who acts as CEO of the startup, said in April of 2013 that the service had surpassed 200 million daily users who together sent more than 20 billion messages a day.


Facebook said Wednesday that those totals have gained tremendously in less than a year, reporting that WhatsApp has 450 million monthly active users and is adding more than 1 million new users every day; Koum said in a blog post that the service has 320 million daily active users.


"WhatsApp's extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide," Koum said in Wednesday's announcement.


WhatsApp will continue to operate as a stand-alone company at its Mountain View offices, with Koum joining Facebook's board of directors. The setup is similar to Facebook's direction with Instagram, which the social network purchased just before its record-breaking initial public offering in 2012 for a then-jaw-dropping total of $1 billion; Instagram has remained a separate service run by founder and CEO Kevin Systrom.


In his blog post, Koum assured WhatsApp users that the service will remain the same.


"Here's what will change for you, our users: nothing," he wrote.

"WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee. 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. 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," Koum added.

Facebook stock closed with a 1.1 percent gain at $68.06 Wednesday; at that stock price, WhatsApp's haul from the acquisition would increase by about $500 million, though shares declined more than 1 percent in late trading after the acquisition was announced. If the deal falls through, Facebook is still obligated to pay WhatsApp $1 billion in cash and $1 billion in stock.


Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.