Facebook paid a total of $18.1 billion for the acquisition of WhatsApp, a startup with no profits, but there’s little to worry about. The acquisition was completed on October 6, and WhatsApp’s primary asset is its 600 million monthly users, up from 450 million it had in February.
The $18.1 billion is a sum of a few line items that Facebook used to value WhatsApp. Facebook paid $288 million for WhatsApp’s tech and $488 million for its brand value, but that’s not much compared to the $2 billion paid for WhatsApp’s user base. On top of that they paid a $15.3 billion for its “goodwill” value, which is intangible by definition.
In 2013 WhatsApp recorded revenue of $10 million and a total net loss of $138 million. A big part of the loss is a result of a share-based compensation of about $98.8 million. In the first six months of 2014 the company brought in $15.9 million of revenue, and a net loss of $232.5 million, with $206.5 million, again a result stock-based compensation expenses. It seems that Facebook wanted WhatsApp badly, no matter the cost or the losses.
Facebook’s CEO Mark Zuckerberg sees this as an investment in the future of the company. It’s a move that will ensure the company’s dominance in social networking. Many would expect Facebook to quickly try to monetize its new acquisition, but according to WhatsApp’s CEO Jan Koum that’s not going to happen any time soon.
WhatsApp bets on the future and expects to make money from monthly subscription fees to be incorporated in the future. This is based on expectations that for the next five to ten years, 5 billion people will have a smartphone. If both Koum and Zuckerberg’s expectations come true, it will turn out that Facebook didn’t pay such a high price for WhatsApp after all.