The WhatsApp Acquisition in Context

There’s already been a lot written about Facebook’s $19B acquisition of WhatsApp. While some are bullish on the deal, others can’t seem to get over the amount Facebook has spent.

Some have compared the price to the GDP of Ukraine. Others have compared it the cost of funding the Iraq War.

One key aspect required to understand the valuation of WhatsApp is putting their user base into context. In Facebook’s September 2013 earnings filing, they stated they had 1.19 billion monthly active users (MAUs) of which 728 million were daily active users (DAUs). Contrast that with WhatsApp which says it has 450 million MAUs of which 320 million are DAUs.

If we dive a little deeper we see that WhatsApp has about 38% of the MAUs and 44% of the DAUs that Facebook has. Not bad for a company only valued at 10% of Facebook’s $173B valuation. Overall Facebook paid about $42 per MAU. How does this compare to other Silicon Valley companies?

Microsoft paid $8.5B for Skype which had 124 millions MAUs at the time or around $68 per MAU.

Google paid $1.65B for Youtube’s 50 million users at the time. It’s unclear whether all 50 million users were MAUs, but even so, the price per user was $33.

Twitter listed its shares at $26 valuing the company at $18.1B. Twitter had 215 million MAUs at the time. As of Q4'13 is has 241 million MAUs and is currently valued just north of $30B.

Outside the Valley, last week Comcast announced that it was buying Time Warner for $45.2B. Time Warner currently has around 11 million subscribers for a price of $4,109/subscriber. As part of the deal, Comcast will agree to shed up to 3 million customers in order to get federal approval for the deal. That would bring the price per subscriber to $5,650. One could argue that Time Warner, in contrast to WhatsApp, has tangible assets which justifies its higher price per subscriber. As of 12/31/2013, Time Warner lists around $29B of equity on their balance sheet, $30B of which is goodwill. It’s likely a large portion of that goodwill will be shed once Time Warner integrates into Comcast and forgoes its branding and all other marks associated with the company.

While $19B is certainly a large sum of money, 450 million MAUs is a great deal of users. Facebook has learned over time that while you may be able to copy another company’s proven app, it will not inherently net you that company’s users. Facebook added Instagram-like filters to their mobile app in 2011, but in 2012 it bought Instagram anyway.