Facebook Inc (NASDAQ:FB) kicked off a storm of controversy with their $19 billion purchase of WhatsApp last Wednesday. While some hailed it as a brilliant move, many analysts (and shareholders) expressed concerns at what seems like a very high price to pay for a company still a long way from their first dollar of profits.

WhatsApp Logo

Google Inc (NASDAQ:GOOG) entered the fray yesterday to comment on rumors it had also been a bidder for WhatsApp, and that’s why Facebook ended up paying so much. Their answer to the question of whether they had been involved in the WhatsApp bidding process was an emphatic “no”.

Google vice president Sundar Pichai was interviewed at the Mobile World Congress on Tuesday, and when asked about the Facebook/WhatApp deal, he replied, “WhatsApp was definitely an exciting product. But we never made an offer to acquire them. Press reports to the contrary are simply untrue.”

Facebook and WhatsApp deal

Facebook Inc (NASDAQ:FB) announced on February 19th that they had struck a deal to acquire the popular mobile messaging service WhatsApp for $19 billion. The deal was structured as $4 billion cash, $12 billion in Facebook stock, and $3 billion in Restricted Stock Units. The stock portion of the deal represents around 8% of Facebook’s float.

WhatsApp is clearly in rapid growth mode, adding more than 1 million new users per day and currently boasting over 450 million daily users and 315 million daily active users. The subscriber base is growing particularly fast in Europe, Latin America and India. Analyst estimates calculate Facebook paid $42 per monthly active user for WhatsApp. Facebook Inc (NASDAQ:FB)’s current per-monthly-active-user valuation is around $140.

Analysts and WhatsApp management project more than 1 billion users worldwide within the next couple of years.

Future earnings

WhatsApp has just begun the process of monetizing their user base. The company did introduce a paid subscription service in a few areas in 2H 2013, but almost no public data on sales is available. Chief executive Jan Koum has been emphatic in all public pronouncements that there will be no ads on WhatsApp, and Facebook Inc (NASDAQ:FB) CEO Mark Zuckerberg has also commented he believes advertising is “not the right model” for the messaging service.