Facebook Inc (FB), WhatsApp Post-Game Review

Raymond James analysts Aaron Kessler and Ben Cohen break down the Facebook / WhatsApp transaction.

After the close on Wednesday, Facebook Inc (NASDAQ:FB) announced the acquisition of WhatsApp (a leading global mobile messaging application) for ~$19 billion in cash and stock. While clearly a large acquisition (represents ~10% of FB’s market value), we believe the acquisition is an important long-term strategic acquisition for Facebook as: 1) it adds a global leader in mobile messaging; 2) WhatsApp is complementary as it is more real-time messaging than Facebook Inc (NASDAQ:FB)’s current Messenger/Chat products; 3) the acquisition helps target the younger generation that is often more engaged with messaging apps vs other social platforms. While the valuation is high vs. current monetization (immaterial today), the massive scale as we have seen with Facebook Inc (NASDAQ:FB) and other platforms provides significant long-term monetization potential.

Facebook Inc (FB), WhatsApp Post-Game Review

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Transaction Details

After the close on Wednesday, Facebook Inc (NASDAQ:FB) announced the acquisition of WhatsApp for approximately $19 billion including $4 billion in cash, 184 million shares of common stock (worth ~$12 billion), and ~$3 billion in RSUs (vested over four years). Shares issued represent ~8% of FB’s shares outstanding. The deal is expected to close later in 2014. Additionally, WhatsApp will continue to operate independently.

What is WhatsApp?

WhatsApp Messenger is a cross-platform mobile messaging app that allows users to exchange messages without having to pay for SMS. WhatsApp has over 450 million monthly users (doubled y/y) with 70% of those using it on a daily basis (similar to Facebook Inc (NASDAQ:FB) engagement levels) and users are sending over 19 billion daily messages and 600 million photos. Additionally, WhatsApp is adding over 1 million users per day and its messaging volume is approaching that of total global telecom SMS volumes. The WhatsApp user base is underrepresented in the U.S. today given WhatsApp’s start in Europe, India, and Latin America.