Facebook is purchasing Whatsapp, the mobile messaging company for $4 billion in cash and $12 billion in stock. Predictably, Facebook stock fell 5 percent to $64.70 after hours, from a previous close of $68.06. Under the deal, Whatsapp’s Chief Executive Jan Koum will join Facebook’s board. In addition, Facebook agreed to keep the Whatsapp brand and service. Should the deal fall through, Facebook would have to give $1 billion dollars in cash to the start-up company. According to the official Whatsapp website, it’s “a cross-platform mobile messaging app which allows you to exchange messages without having to pay for SMS.” Facebook is hoping this will be appeal to younger users who seem to be losing interest in Facebook.
This $16 billion deal for a startup company, clearly demonstrates the seriousness with which Facebook is addressing this issue. Wall Street should take notice as this deal is speculation at it’s finest or more accurately at it’s most desperate. While it’s simple to understand what Facebook is attempting, there’s no guarantee the effort will be successful. As important however, its attempt to hold on to users, still doesn’t address how this company will help improve Facebook’s revenue position. If Facebook is to ever thrive, it will have to do more than simply attempt to hold on to users. It will have to figure out how to make money other than through advertising. I simply can’t see how laying out $16 billion will help generate revenue in the short or long-term.