Why WhatsApp is an absolute steal for Facebook at $19B

I have been the contrarian on the Whatsapp deal with Facebook. I think this is an absolute steal for Facebook. Here is why I think that:

The email address was the unique id to identify anyone over the last 30 years. Turns out that’s only true for about a billion to maybe 2 Billion people. Now, almost everyone that has an email address (or will very soon) has a facebook account.

The mobile phone number is the new unique id. That will be the unique identification for the NEXT 2 Billion people OR more.

By any conservative measure, Whatsapp will be at 2 Billion people in 2 years. They have executed so well so far to get to 450 Million users that it seems very likely they will get there.

There is a small risk they may not, but a risk Zuck’s probably willing to take .

So, if you were Zuck and you got 2 Billion user’s unique id for 1/10th of the price of his company.

Twice the number of users at 1/10 of the price. That’s got SALE written all over it.

Why would you not do that?

FB has 1 + Billion users and is valued at $160 B with a revenue of $6 Billion.

WhatsApp will have 2 Billion users and is valued at $16 Billion and is breaking even / profitable already.

No brainer deal and an absolute steal in my mind.

The future of communication is up for grabs as well. Email is clearly not the preferred medium for my kids and the younger folks.

My kids only use Whatsapp. They also use YouTube as their search engine instead of Google or Bing.

These are the BIG changes being driven by MOBILE.

That’s the future. And Zuck now has gotten relatively cheap insurance against being a small player in mobile.

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15 thoughts on “Why WhatsApp is an absolute steal for Facebook at $19B

  1. Amit Goldie (@gold_that_is)

    Interesting analysis and the right one too. I also believe that Whatsapp was eating into Facebook’s market share as it was lighter way to achieve almost the same thing from a consumer point of view (not talking about businesses here).

    Reply
  2. Pranav Ahuja

    Facebook was always scared of other mobile first companies (Snapchat ring a bell). Now with Instagram and Whatsapp part of Facebook, Zuck shouldn’t have that fear anymore. Completely agree, Whatsapp is an amazing buy for Facebook.

    Reply
  3. Neil Mathew

    I was scratching my head thinking whats the use for Facebook with this purchase. As WhatsApp is subscription driven and would continue to remain so. There is not much revenue one could expect. But as you said it will help facebook reach the remaining users of the world.

    Reply
  4. aguk

    I am sure 30% of the valuation is because of the Indian Youth !!!!!

    Time is ripe for an Indian guy to make something similar….

    See, they have just taken the market from Skype… Made something simpler than Skype and made double the money !!!!

    Reply
  5. Vinay Narayan

    Your post addresses user acquisition very well. Any thoughts on how FB will monetize on WhatsApp w/o causing too much churn?

    Reply
    1. Mukund Mohan Post author

      Vinay, Whatsapp is already monetizing. They are near breakeven or profit apparently. So the real question is how do they monetize even more. Which I think is a 3-4 year question. Right now they are not losing money so the acquisition will be not dilutive to FB earnings.

      Reply
  6. Kapil

    absolutely agree mukund – to add to this – the deal has a large majority of the value paid in stock – which is great for FB since it does not suck from the operations of the company. Its a brilliant pre-emptive move by FB before Google or someone else would buy them out.

    Reply
  7. themiddleman1990

    Hi Mukund,
    Interesting article! I’d like to enquire about a few key points you’ve mentioned in your write up -

    1) In your own words, “By any conservative measure, Whatsapp will be at 2 Billion people in 2 years”. Whatsapp has grown at 100% YoY the previous year and going by that estimate, it’ll reach 1.8Billion users. But don’t you think that their growth will get slow down in the next couple of years? They already have a presence in markets that have strong mobile/telecom infrastructure which has lead to their exponential growth. As they continue to scale operations into markets that have lesser infrastructure, they might not have such great numbers. If I remember correctly, Facebook’s growth became slower around the time they hit 500 million users.

    2) You’ve mentioned “Twice the number of users at 1/10 of the price. That’s got SALE written all over it.” while referring to the point that Zuckerberg can get more unique ID’s through this acquisition. I’d question the 1/10th figure as you’re not accounting for FB’s growth in the next couple of years. I think we can safely say that FB could also grow to ~ 2Billion users in the next 2 years

    3) “They(your kids) also use YouTube as their search engine instead of Google or Bing.” – Interesting point. I’m trying to understand the view here. How is Youtube an alternative to Google? They do vastly different things. Are there any numbers to back this claim that Google is losing popularity amongst younger audience?

    4) Your point on phone numbers being the new unique ID’s was hugely insightful! I never thought about that as a factor, but don’t think that $16Billion is too much money for that data? There might be alternate ways to get the phone numbers of people with that kind of money(Maybe buy out a company like TrueCaller?).

    These are just my thoughts. Would love to hear your opinion on these!

    Reply

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