Why did Facebook acquire WhatsApp for 19 Billion?
I completed my Accounting Module last week at HKU B-School. As a group case study, my team was given the ‘Facebook’s acquisition of WhatsApp: Rise of Intangibles’ Case study.
Sharing some key insights from our research:
Why did Facebook want to acquire WhatsApp?
1. Defensive Move: In 2013, Facebook has 1.2 billion active monthly users, but their growth was stagnating and Facebook’s Messenger rival was WhatsApp. WhatsApp was getting 1 Million new users daily and had higher engagement than Facebook. WhatsApp also had 100% Yoy growth with just 55 employees. Whatsapp had rejected 9 Billion offer from Google. They were a threat to FB messenger and by acquiring WhatsApp they would kill future competition
2. Expand Markets: Facebook is massive in the US and much of Europe but had less penetration in Latin America, India, and Asia where WhatsApp had a strong market share. With the help of WhatsApp, they would tap into emerging markets.
3. The next billion users: This brings us to the 3rd point. WhatsApp is how Facebook hoped to fill in its global gap and acquire its next billion users.
4. Market Leaders: Facebook had already acquired Instagram and acquiring WhatsApp will bring them close to 2 billion active users — that way they would be dominating the social media space.
How did they derive at 19 Billion Valuation?
How did this marriage turn out for both parties?
WhatsApp:
· Currently they have 2 Billion users, 1 Billion daily active users, and their key markets are India and Latin America.
· With the help of FB, they have penetrated into EU markets.
· They introduced 3 new business models which will help them generate revenue for FB:
1. WhatsApp Pay — Users can pay using the app and businesses pay flat payment fees.
2. WhatsApp Business — They have 3 Million users; many Businesses are using WhatsApp to interact with customers and for customer support directly.
3. Click to WhatsApps — Advertisers can redirect customers from FB/Insta ads to WhatsApp business chat accounts and generate leads and generate sales.
FaceBook:
· They have 2.8 Billion users with the help of WhatsApp and Instagram users making them social media market leaders
· They see 30% YoY growth in last 5 years
· In 2013 the FB stock was valued at 41$ in 2013 and today its around 351$
· Facebook’s revenue grew from 8 billion in 2013 to 86 billion US dollars in 2020.
· Facebook is now worth 1 trillion dollars.
FaceBook’s Social Dilemma:
Last week, Facebook, along with its services Instagram and WhatsApp, experienced a major outage that lasted several hours, sending half of the world into a state of panic. On the other end Frances Haugen, whistleblower exposed all the Facebook internal research data showing how the social network’s algorithm amplified misinformation. profits before people. Haugen said Facebook knows that vulnerable people are harmed by its systems, from kids who are susceptible to feel bad about their bodies because of Instagram to adults who are more exposed to misinformation after being widowed, divorced, or experiencing other forms of isolation such as moving to a new city. The platform is designed to exploit negative emotions to keep people on the platform, more engagement more profits.
FaceBook Big Data — Evil Plans:
Data WhatsApp can share with Facebook includes your phone number and profile name. In addition, more detailed information underlying the message known as metadata, including when it was sent and your IP address, can be collected and shared with so-called “Facebook companies”. Mark has got us all, with the FB, WhatApps, and Instagram data he has more info of a person than Google today. Hence, more than being a social media company, Facebook is a data company. This Big Data will help them serve targeted ads making more ad revenue. More products, More cash flow & Growth potential.
Key Learnings from the Case Study:
Let me leave you’ll with 3 tangible learnings from this case study:
1. WhatsApp founders were rejected during the FB interview. They went ahead and founded a company that FB acquired for 19Billion. Lesson for life — Failure and rejection are not setbacks, they are your steps for learning.
2. Market gurus all said 19 Billion was too much for a startup that made zero revenue. Mark Zuckerberg thought they are far more worth than 19 billion. We can do all the logic to evaluate a company, but when mergers and acquisitions happen it's not just about numbers. A company is more than just a number, it's a vision, hopes, partnership synergies, and faiths that can make or break an acquisition.
3. Social media is majorly dominated by Google and Facebook. We need more diversity in this space. Social media algorithms run on agendas so when you invest time in them be aware of the content you are consuming for your own well-being and mental health.
