Facebook buys WhatsApp for $19B.

The early investor Sequoia Capital presents WhatsApp as the amazing story with amazing figures. It is all true but within 2 years there is new WhatsApp with even more amazing figures and probably aqcuired for even Billions.

The story sounds impresive but it is still very, very expensive and…
how can Facebook earns it back?

The note on Jan Koum’s (CEO WhatsApp) desk (source: sequoiacapital.tumblr.com)

At first some nuance. The deal is made as follows:

  • $4B is paid in cash
  • $13B is paid in Facebook shares (stock-for-stock merger)
  • $3B will be paid to the employees coming years in restricted Facebook shares (also Stock for stock)

So in cash Facebook “only” have to earn $4B back. If Facebook doesn’t earn it back on WhatsApp they need to cover it with own profits. As Facebook is getting more and more profitable every quarter. With a profit of more then $500M in Q4 2013,  it will be possible to earn $4B coming years.

So the main part is paid by Facebook shares which makes it mainly a “Stock for stock merger“. The disadvantage from a “Stock for stock merger” is that it leads to dilution. On Investopedia it is explained how it leads to delution.

From the perspective eat or being eaten there is something to say about the take over. The big challenge will be to earn om WhatsApp users or move them to advertisement consuming Facebook users.

As the shares are exchanged it comes on the cost of the shareholders but the financial risk if Facebook is not able to earn their investment back is not so big. The difference in cash with or without WhatsApp is not that big.

My conclusion is that Mark Zuckerberg has given up Facebook in his vision to connect identified users (see movie below) worldwide but looks for opportunities to realize his dream (or mission). You can say about Mark what you want but he is not going for his dream (or mission) and not for the money, as Mark is a main shareholder of Facebook.

The big question is will the Facebook dream ends or will it grow with aqcuisitions?

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