Facebook bought Whatsapp for $19B in cash and stock ($16B buyout and $3B in incentives for the founders to stay with Facebook post-merger). Seriously, that is not a joke. I thought the headline was a joke when I saw it. It’s for real.
Allegedly, it’s a valuation of $40 per user, similar to other deals.
Has anyone here ever heard of Whatsapp before the deal was announced?
Allegedly, most of Whatsapp’s users are in other countries, especially India. Allegedly, that’s the reason Whatsapp sold for so much money, even though most people in the USA never heard about it.
The deal is obviously stupid. This is going to end up like almost all mergers, where they mismanage the acquisition and in a few years all the users leave for a competing product. (One notable exception is YouTube, which is subsidized by Google’s other revenue. One reason a serious YouTube competitor hasn’t emerged is the huge cost of storing and streaming videos.)
Whatsapp has usefulness for at most a couple more years, even if it would be managed well. In a couple years all phones will have a built-in app that does messaging as well or better.
Also, the valuation of $40 per user doesn’t make sense when most of the users are outside the USA, especially in 2nd and 3rd world countries. Facebook makes money from advertising, and advertising to US users is much more valuable to 3rd world users.
Mark Zuckerberg and his backers have special super-voting shares in Facebook, which gives them control of the company even though it’s public. That prevents an “activist investor” from buying up Facebook shares and trying to prevent them from wasting money. Besides, Facebook makes most of its profit off hype and not a legitimate revenue stream, making it unattractive for a typical leveraged buyout. With special super-voting shares, it’s easy for insiders to squander shareholder money on frivolous buyouts.
Given that most of the users are in India, there’s an obvious conspiracy theory. Pay a bunch of people in India $1-$5 each to install the app, then flip it to Facebook for billions. Easy money! (There is one indirect legitimate benefit. Some cell phone plans charge less for data than for text messages, making it a legitimate savings if you use an app instead of text messages. However, most US smartphone plans include unlimited text messaging now. The cost to the cell phone company per text message is negligible. Any data plan benefit to using an app instead of text message is temporary at best, as data plans and text messaging plans improve.)
The founders and backers of Whatsapp swear they didn’t pay for user acquisition. If you believe that, they’ve got an overpriced startup to sell you.
There’s another conspiracy. Allegedly, the same group of insiders control Facebook and Whatsapp. The buyout enables a $19B wealth transfer from Facebook shareholders to Whatsapp’s shareholders and founders. It’s the usual trading favors game. Whatsapp’s backers get a lot of free money, in exchange for unspecified favors later. Facebook is nearing the end of its pump-and-dump lifespan, so milk the shareholders while you can.
The $19B isn’t free money. The cost is dilution for the current Facebook shareholders. The share price of Facebook will tank as insiders dump their overpriced shares on unsuspecting suckers.
Even when the Whatsapp buyout inevitably flops, there will be vague excuses and no accountability.
There’s another theory I heard. Whatsapp owns some patents, presumably the usual type of junk software patent that should never been issued in the first place. Allegedly, Facebook is buying Whatsapp for these patents, either defensively or so they can sue others in the future. Most software patents are things that would be obvious to any software expert in the area, but what counts is the ability to manipulate the legal system. Patents are legal extortion. Facebook might be buying the right to engage in legal extortion in the future, or prevent from being the victim of legal extortion.
This is such an obviously stupid deal that I thought the headline was a joke. It is possible that people in other countries were paid to install and use the app, inflating the numbers. It certainly would cost much less than $19B to buy a bunch of users. The deal is a huge wealth transfer from Facebook shareholders to Whatsapp shareholders. If you were dumb enough to invest in Facebook, you deserve to get robbed.