How Facebook Will Benefit from the WhatsApp Deal

In early 2014, Facebook (FB) announced the acquisition of WhatsApp for a jaw-dropping $19 billion in cash and stock. Facebook kept WhatsApp as a separate service just as it did with Instagram. The valuation seemed big, especially because WhatsApp didn’t have any monetization model.

WhatsApp is a cross-platform mobile messaging app that allows users to exchange messages for free. Currently, WhatsApp has over one billion MAUs who send approximately 60 billion messages every day.

The company paid approximately $4.6 billion in cash and issued 178 million shares. Also, Facebook granted 46 million restricted stock units to WhatsApp employees, which represented 7.9% of Facebook’s shares.

WhatsApp competes with apps like Line, Viber, and China-based (FXI) Tencent’s (TCEHY) WeChat in the mobile messaging industry. However, WhatsApp is the global leader, and it’s quite popular, especially in Europe, Latin America, and Asia.

Besides, WhatsApp offers several benefits to Facebook, including a large user base in the direct messaging arena, smartphone engagement, and high international penetration across various demographics.

The rationale that Facebook gave in acquiring WhatsApp at that valuation was that during the first four years of its operation, the number of users on WhatsApp grew faster than comparable networks like Facebook, Google’s (GOOG) Gmail, Twitter (TWTR), and Microsoft’s (MSFT) Skype.