Bottom Line: Investors are right to shrug off price tag
FACEBOOK’S $19bn (£11.4bn) payment for instant messaging service Whatsapp knocked many market watchers sideways. Those numbers see the start-up of just 55 employees valued at more than American Airlines or Ralph Lauren. But Zuckerberg isn’t here for Whatsapp’s profitability – it charges users 99 cents just once a year – he wants its market share.
There are plenty of other messaging services out there, but none match Whatsapp for sheer user volumes. It commands 450m monthly users around the world, with 320m active users each day, and has eaten away traditional text messaging services.
Shopping sprees by web giants aren’t new. This week we saw Google disclose more about its new investment arm, Google Capital, and over the last five years the company, once famous for just search, has picked up around 100 other companies. Newly installed Microsoft CEO Satya Nadella is also trying to reposition, looking to move the software giant towards consumer tech. But even if all does go wrong with Whatsapp, then the blow to Facebook shouldn’t be too bad.
This is a heavy stock deal – $12bn in shares, $3bn in restricted stock plus $4bn cash – and investors proved yesterday that they don’t care about being diluted. Whatever you think Whatsapp is worth, a $4bn hit to its suitor’s balance sheet is much more palatable. The resulting dilution is equal to around $6 off the value of each share. But investors welcomed the deal, meaning instead of falling 8.8 per cent, shares touched a record trading high. The internet is consolidating and Zuckerberg wants to be king. Whatsapp’s price tag is just part of his mission to prove he deserves the crown.