(Updates value of deal, adds comments from venture capitalists
By Gerry Shih and Sarah McBride
Feb 19 Facebook Inc will buy fast-growing
mobile-messaging startup WhatsApp for $19 billion in cash and
stock, as the world's largest social network looks for ways to
boost its popularity, especially among a younger crowd.
The acquisition of the hot messaging service with more than
450 million users around the world stunned many Silicon Valley
observers with its lofty price tag.
But it underscores Facebook's determination to win the
market for messaging, an indispensable utility in a mobile era.
Combining text messaging and social networking, messaging
apps provide a quick way for smartphone users to trade
everything from brief texts to flirtatious pictures to YouTube
clips - bypassing the need to pay wireless carriers for
And it helps Facebook tap teens who will eschew the
mainstream social networks and prefer WhatsApp and rivals such
as Line and WeChat, which have exploded in size as mobile
messaging takes off.
"People are calling them 'Facebook Nevers,'" said Jeremy
Liew, a partner at Lightspeed and an early investor in Snapchat.
WhatsApp is adding about a million users per day, Facebook
co-founder and Chief Executive Officer Mark Zuckerberg said on
his page on Wednesday.
"WhatsApp will complement our existing chat and messaging
services to provide new tools for our community," he wrote on
his Facebook page. "Since WhatsApp and (Facebook) Messenger
serve such different and important users, we will continue
investing in both."
Smartphone-based messaging apps are now sweeping across
North America, Asia and Europe.
"Communication is the one thing that you have to use daily,
and it has a strong network effect," said Jonathan Teo, an early
investor in Snapchat, another red-hot messaging company that
flirted year ago with a multibillion dollar acquisition offer
"Facebook is more about content and has not yet fully
figured out communication."
Even so, he balked at the price tag.
As part of the deal, WhatsApp co-founder and Chief Executive
Officer Jan Koum will join Facebook's board, and the social
network will grant an additional $3 billion worth of restricted
stock units to WhatsApp's founders, including Koum.
That is on top of the $16 billion in cash and stock that
Facebook will pay.
"Goodness gracious, it's a good deal for WhatsApp," Teo
Shares in Facebook slid 5 percent to $64.70 after hours,
from a close of $68.06 on the Nasdaq.
Facebook said on Wednesday it will pay $4 billion in cash
and about $12 billion in stock in its single largest
acquisition, dwarfing the $1 billion it paid for photo-sharing
The price paid for Instagram, which with just 30 million
users was already considered overvalued by many observers at the
Facebook promised to keep the WhatsApp brand and service,
and pledged a $1 billion cash break-up fee if the deal falls
Facebook was advised by Allen & Co, while WhatsApp has
enlisted Morgan Stanley for the deal.
(Additional reporting by Soham Chatterjee in Bangalore; Editing
by Savio D'Souza, Andrew Hay and Lisa Shumaker)