Facebook Inc will buy fast-growing mobile-messaging startup WhatsApp for $19 billion in cash and stock, as the world’s largest social network looks for ways to boost its popularity, especially among a younger crowd.
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.
But it underscores Facebook’s determination to win the market for messaging, an indispensable utility in a mobile era.
Combining text messaging and social networking, messaging apps provide a quick way for smartphone users to trade everything from brief texts to flirtatious pictures to YouTube clips — bypassing the need to pay wireless carriers for messaging services.
And it helps Facebook tap teens who will eschew the mainstream social networks and prefer WhatsApp and rivals such as Line and WeChat, which have exploded in size as mobile messaging takes off.
“People are calling them ‘Facebook Nevers,'” said Jeremy Liew, a partner at Lightspeed and an early investor in Snapchat.
WhatsApp is adding about a million users per day, Facebook co-founder and Chief Executive Officer Mark Zuckerberg said on his page on Wednesday.
“WhatsApp will complement our existing chat and messaging services to provide new tools for our community,” he wrote on his Facebook page. “Since WhatsApp and (Facebook) Messenger serve such different and important users, we will continue investing in both.”
Smartphone-based messaging apps are now sweeping across North America, Asia and Europe.
“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 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, he balked at the price tag.
As part of the deal, WhatsApp co-founder and Chief Executive Officer Jan Koum will join Facebook’s board, and the social network will grant an additional $3 billion worth of restricted stock units to WhatsApp’s founders, including Koum.
That is on top of the $16 billion in cash and stock that Facebook will pay.
“Goodness gracious, it’s a good deal for WhatsApp,” Teo said.
Shares in Facebook slid 5 percent to $64.70 after hours, from a close of $68.06 on the Nasdaq.
Facebook said on Wednesday it will pay $4 billion in cash and about $12 billion in stock in its single largest acquisition, dwarfing the $1 billion it paid for photo-sharing app Instagram.
The price paid for Instagram, which with just 30 million users was already considered overvalued by many observers at the time.
Facebook promised to keep the WhatsApp brand and service, and pledged a $1 billion cash break-up fee if the deal falls through.
Facebook was advised by Allen & Co, while WhatsApp has enlisted Morgan Stanley for the deal.
“I’m excited to announce that we’ve agreed to acquire WhatsApp and that their entire team will be joining us at Facebook,” Facebook CEO Mark Zuckerberg said in a post published to Facebook. “Our mission is to make the world more open and connected. We do this by building services that help people share any type of content with any group of people they want. WhatsApp will help us do this by continuing to develop a service that people around the world love to use every day.”
The astronomical price tag demonstrates just how eager the social network is to subsume one of its largest challengers — at least in terms of audiences. Though largely focused on member-to-member messaging, 5-year-old WhatsApp is grown to be greater than one-third the size of Facebook and offers a more insular social networking experience beloved by youngsters and foreigners.
The network gives Facebook an important asset as it seeks to conquer the rest of world and maintain high engagement rates, but WhatsApp won’t become another channel for ads — at least, according to founder and CEO Jan Koum, who will also be joining Facebook’s board of directors.
“You can continue to use WhatsApp no matter where in the world you are, or what smartphone you’re using,” Koum said. “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.”