With Facebook's (FB) acquisition of the text-messaging app WhatsApp for $19 billion in cash and stock, the jaw-dropping price tag is raising dot-com bubble comparisons along with nods of approval.
But one thing is not up for debate: the acquisition will make WhatsApp's founders billionaires.
For 38-year-old cofounder Jan Koum, it's a far cry from where he started in this country. As a teenager, his family relied on food stamps after emigrating to the U.S. from the Ukraine.
Meanwhile, WhatsApp cofounder Brian Action was employee No. 44 at Yahoo (YHOO), an engineer working on advertising, shopping and travel services, according to Wired. Acton would hire Koum at Yahoo and become his mentor.
The two left Yahoo on the same day in 2007 and started WhatsApp in 2009. But first, after leaving Yahoo, Acton said on Twitter that he was turned down for a job at Facebook…the company that is now buying his in the largest Internet deal since Time Warner's $124 billion merger with AOL in 2001, according to Bloomberg.
As for the app itself, it offers instant messaging without the fees that carriers often charge. It's free for a year, 99 cents yearly after that, and does not show ads. WhatsApp has racked up 450 million users and is very popular overseas. For comparison, Twitter (TWTR) has 240 million users and is valued at $30 billion. Facebook paid about $40 per user in the deal, which The Wall Street Journal reports is in-line with the amount paid for other social media companies in recent years.
Naysayers like Rob Enderle, principal analyst at Enderle Group, say the $19 billion price tag is "crazy money," and the deal is an act of desperation on Facebook's part (to get its user count up).
But Jeff Macke, host of Yahoo Finance's Breakout, tell us in the accompanying video that he thinks it's a "brilliant deal."
"I don't think Facebook can overpay," he says. "They've got nice cashflows; the stock market obviously values them generously." With this acquisition, he says, "What they've done is captured the market -- it's game over for every other competitor" in the instant messaging space.
But how much revenue will this actually produce for Facebook? "I've done a back of the envelope calculation and it comes out: who cares," Macke says. Check out the video to find out why.
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