$16 billion! Facebook dips into its cash reserves and acquires the WhatsApp messaging company

Deal involves $4 billion in cash, the rest in stock over 4 years

One year ago tech reporters said that WhatsApp, a popular smartphone messenger, was “pushing $1 billion in valuation.” Either that valuation was incredibly low, or Facebook just wildly overpaid for the company.

WhatsApp-logoThis afternoon, after the close of the stock market, Facebook announced that they had bought WhatsApp for $16 billion, $4 billion in cash, the rest in stock. There is also an additional $3 billion in restricted stock that will be granted to WhatsApp employees and it’s founders.** The deal uses up about a third of Facebook’s cash reserves.

One year ago the rumor was that Google was interested in buying the company. But WhatsApp is pretty anti-advertising and it did not seem like a good fit. With Facebook the emphasis will be on growing users and using their subscription model to monetize their users.

WhatsApp is used by over 450 million people, but it will be facing stiff competition from other new messaging start-ups from China and elsewhere.

But Mark Zuckerberg, Facebook’s founder and CEO said, both on the conference call and in the press release, that he believes WhatsApp is on its way to being used by a billion users.

WhatsApp is only four years old. It was founded in 2009 by Ukrainian Jan Koum, who is the CEO, and American Braian Acton. Both founders are former Yahoo! employees and founded the company in Mountain View, which is also the home of Google.

WhatsApp will continue to operate independently, Facebook said, though Koum will now join the Facebook board. The company only has 35 engineers, so Facebook is not getting a ton of creative talent in the deal, all the value is in the end users.

We’ll have to see tomorrow what investors think about the purchase price Facebook has just paid for WhatsApp. Investors will either see the move as a daring move into messaging, or a sure sign of a new tech bubble. But it feels like a big bet on a future where users want to feel that they are not using a service that wants more and more information about them. That is another reason Google was not a good fit.

**That actually makes this a $19 billion deal, though Facebook is saying $16B. The reality is that since much of it is stock, the most important element is the $4 billion in cash that Facebook is paying WhatsApp’s investors.

Here are the key slides from the investor presentation:

[slideshow gallery_id=”12″]