AMMA Private Equity Look at WhatsApp’s Massive Price Tag
AMMA Private Equity focus its efforts on connecting members to start-ups in the technology space because although they can be risky to invest in, successful start-ups can deliver returns so large that an investor could retire on the earnings!
Take WhatsApp for example. Most people that follow tech or stock news would know that Facebook bought WhatsApp for $19 Billion USD.
What makes a simple messaging app, similar to so many others, worth such a ginormous amount? Let’s find out.
WhatsApp Messenger is an instant messaging client for smartphones. It uses the Internet to send text messages, documents, PDF files, GIF images, video, user location and audio messages to other users using standard cellular mobile numbers.
As of February 2016, WhatsApp had a user base of 1 Billion, making it the most popular messaging application.
WhatsApp was the brain child of former Yahoo employees Brian Acton and Jan Koum back in 2009, after they experienced the first iPhone. They quickly realised that the Apple App Store was about to spawn a whole new industry of apps and this savvy pair decided to develop a messaging app. They immediately chose the name ‘WhatsApp’ because it sounded like "what's up!".
Sequoia Capital were the sole venture investors in WhatsApp and paid approximately $8 million for more than 15 percent of the company (in addition to $250,000 seed funding raised). By the start of 2013, WhatsApp's users had grown to around 200 million active, and their staff had grown to 50. Sequoia invested another $50 million, valuing WhatsApp at $1.5 billion.
By August 2014, Koum announced on his Twitter account that WhatsApp had over 600 million active users worldwide. At that stage WhatsApp was acquiring over 25 million new users every month, with India showing the largest number of consumers.
Months after Sequoia’s $50 million capital injection – which valued the company at $1.5 Billion - Facebook announced it was acquiring WhatsApp for US$19 billion (Facebook paid $4 Billion in cash, $12 Billion in Facebook shares and $3 Billion in restricted stock units to the WhatsApp's founders).
This was Facebooks largest acquisition to date, and at that point in time, it was the largest purchase of a venture-backed company in history. Sequoia Capital received a return 50 times greater than their initial investment.
At a keynote presentation at the Mobile World Congress in Barcelona in February 2014, Facebook CEO Mark Zuckerberg said that Facebook's acquisition of WhatsApp was closely related to the Internet.org vision. According to a TechCrunch article, Zuckerberg's vision for Internet.org was “to develop a group of basic internet services that would be free of charge to use – 'a 911 for the internet.' These could be a social networking service like Facebook, a messaging service, maybe search and other things like weather. Providing a bundle of these free of charge to users will work like a gateway drug of sorts – users who may be able to afford data services and phones these days just don’t see the point of why they would pay for those data services. This would give them some context for why they are important, and that will lead them to paying for more services like this – or so the hope goes."
So why the valuation of $19 Billion?
Messaging sits at the epi-centre of all mobile use. No apps are opened as often as messaging apps and while you may spend longer scrolling through Facebook, Instagram, Twitter or Pinterest, the frequent short sessions on chatting apps make them a gateway to other experiences.
Which means they’re more valuable than they might first appear.
Another important point, which made is risky for Facebook not to purchase WhatsApp, was the possibility of allowing a competitor to get there first. Google could have easily used it as for their own purposes and suddenly, Facebook would have been battling a deep-pocketed competitor that had the ability to replace the way the world messages and chats. WhatsApp has also achieved massive popularity in the developing world where SMS fees are notoriously high.
Whether WhatsApp stayed independent or was sold to someone else, it could have posed a serious challenge for Facebook’s social networking domination. WhatsApp is not just for chats, it also offers a status update feature, and since messaging is the core feature of mobile use, WhatsApp had the capability to grow into a fully-fledged social network.
Basically, messaging apps are the portals of mobile, and Facebook owns the biggest one!
AMMA Private Equity is a boutique private equity company based in Australia. They exclusively connect tech start-up businesses with an extensive Accountant network in order to raise capital.
*Please note that nothing in this article should be construed as constituting financial advice. Professional advice (legal, financial, industry or any other relevant professional advice whatsoever) should be obtained before applying, using, adopting or relying upon the information or content contained in this article. The information or content is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Please seek professional advice before acting or relying on any of the content
Take WhatsApp for example. Most people that follow tech or stock news would know that Facebook bought WhatsApp for $19 Billion USD.
What makes a simple messaging app, similar to so many others, worth such a ginormous amount? Let’s find out.
WhatsApp Messenger is an instant messaging client for smartphones. It uses the Internet to send text messages, documents, PDF files, GIF images, video, user location and audio messages to other users using standard cellular mobile numbers.
As of February 2016, WhatsApp had a user base of 1 Billion, making it the most popular messaging application.
WhatsApp was the brain child of former Yahoo employees Brian Acton and Jan Koum back in 2009, after they experienced the first iPhone. They quickly realised that the Apple App Store was about to spawn a whole new industry of apps and this savvy pair decided to develop a messaging app. They immediately chose the name ‘WhatsApp’ because it sounded like "what's up!".
Sequoia Capital were the sole venture investors in WhatsApp and paid approximately $8 million for more than 15 percent of the company (in addition to $250,000 seed funding raised). By the start of 2013, WhatsApp's users had grown to around 200 million active, and their staff had grown to 50. Sequoia invested another $50 million, valuing WhatsApp at $1.5 billion.
By August 2014, Koum announced on his Twitter account that WhatsApp had over 600 million active users worldwide. At that stage WhatsApp was acquiring over 25 million new users every month, with India showing the largest number of consumers.
Months after Sequoia’s $50 million capital injection – which valued the company at $1.5 Billion - Facebook announced it was acquiring WhatsApp for US$19 billion (Facebook paid $4 Billion in cash, $12 Billion in Facebook shares and $3 Billion in restricted stock units to the WhatsApp's founders).
This was Facebooks largest acquisition to date, and at that point in time, it was the largest purchase of a venture-backed company in history. Sequoia Capital received a return 50 times greater than their initial investment.
At a keynote presentation at the Mobile World Congress in Barcelona in February 2014, Facebook CEO Mark Zuckerberg said that Facebook's acquisition of WhatsApp was closely related to the Internet.org vision. According to a TechCrunch article, Zuckerberg's vision for Internet.org was “to develop a group of basic internet services that would be free of charge to use – 'a 911 for the internet.' These could be a social networking service like Facebook, a messaging service, maybe search and other things like weather. Providing a bundle of these free of charge to users will work like a gateway drug of sorts – users who may be able to afford data services and phones these days just don’t see the point of why they would pay for those data services. This would give them some context for why they are important, and that will lead them to paying for more services like this – or so the hope goes."
So why the valuation of $19 Billion?
Messaging sits at the epi-centre of all mobile use. No apps are opened as often as messaging apps and while you may spend longer scrolling through Facebook, Instagram, Twitter or Pinterest, the frequent short sessions on chatting apps make them a gateway to other experiences.
Which means they’re more valuable than they might first appear.
Another important point, which made is risky for Facebook not to purchase WhatsApp, was the possibility of allowing a competitor to get there first. Google could have easily used it as for their own purposes and suddenly, Facebook would have been battling a deep-pocketed competitor that had the ability to replace the way the world messages and chats. WhatsApp has also achieved massive popularity in the developing world where SMS fees are notoriously high.
Whether WhatsApp stayed independent or was sold to someone else, it could have posed a serious challenge for Facebook’s social networking domination. WhatsApp is not just for chats, it also offers a status update feature, and since messaging is the core feature of mobile use, WhatsApp had the capability to grow into a fully-fledged social network.
Basically, messaging apps are the portals of mobile, and Facebook owns the biggest one!
AMMA Private Equity is a boutique private equity company based in Australia. They exclusively connect tech start-up businesses with an extensive Accountant network in order to raise capital.
*Please note that nothing in this article should be construed as constituting financial advice. Professional advice (legal, financial, industry or any other relevant professional advice whatsoever) should be obtained before applying, using, adopting or relying upon the information or content contained in this article. The information or content is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Please seek professional advice before acting or relying on any of the content