Facebook CEO Mark Zuckerberg addressed Wall Street analysts on his $19 billion acquisition today of WhatsApp, the messaging app, and told them he was thinking five or 10 years ahead.
No, he said, monetization was not an issue. Facebook isn't even thinking about that right now.
And no, Facebook would not run ads on WhatsApp.
Analysts asked a few questions about revenues and monetization — and were disappointed. WhatsApp already has a revenue stream (it requires a subscription, eventually) but that is not the point.
Rather, the company paid $19 billion — a staggering sum by any reckoning — because it is buying the future of smartphones. There are about 1 billion smartphones in the world right now, Zuckerberg and WhatsApp CEO Jan Koum said, and in five or 10 years there will be 5 billion. Messaging will be the No.1 activity on those phones, the pair believe, just as it is now.
"It's the only app we've ever seen with higher engagement than Facebook itself," Zuckerberg said.
So Facebook bought the biggest and best messaging company in the world — WhatsApp already has 450 million users and obsessively focuses just on speed and reliability.
The stock declined more than 2% after hours on the news.
Here are the investor slides in PDF format.
Here is how the call went down.
Zuckerberg: "The combo of whatsapp and FB will allow us to connect more people around the world ... Facebook is becoming a mobile company ... 945 million use mobile product every month ... WhatsApp fits this vision perfectly ... strengthen both services ...
WA has strong engagement and rapid growth ... it doesn't get as much attention in the U.S. as it deserves
Only app we've ever seen with higher engagement than FB itself.
1 mm signups per day
we believe WA will reach 1 billion in next 5 yrs.
Successful subscription model in place already.
Simple, fast reliable and a great experience.
People use WA as a replacement for SMS.
FB messages not used in real time.
Part of mission is to deliver basic internet services all over the entire world.
WA had every option in the world so I'm thrilled they chose us.
Personal note: I've known Jan for a long time. Jan's team has done amazing work over the last 5 yrs.
Jan: I'm delighted. ... incredible moment for me and entire team. I want to thank them.
Our goal was to build a platform for everyone on every platform on every phone.
19 bn messages a day sent on WA. 16 million photos.
FB lets us reach even more people, offers more functionality.
I've known Mark for a number of years ... admired ... FB is a model for our company. Gratified we can keep the team together.
David Ebersman: Offer will vest over 4 years ... already approved by WA shareholders. Close later in 2014. 450 mm people using service ea month, 70pc active every day.
WA will deliver sign returns for shareholders over long term.
How did deal come about?
Zuck: Jan have known each other for a couple of years ... 11 days ago, last Sunday evening, I proposed if we joined together it would really connect the rest of the world. He thought about it and over the course of the week he said he was interested ... then we got the price later in the week and came to terms ... we dec to go forward from there.
WA will operate independently. We want to do this the same way did Instagram. This is obviously a bigger scale. ... it really can work. Kevin (Systrom) has gotten a huge amount of value from using the FB infrastructure ... that will be the model here too. ... we're not going to push v much.
Ads on WA and monetization:
Zuck: Our explicit strategy is for the next several years to focus on growing and connecting everyone in the world and when we get to 2 or 3 billion people one day there are many ways to monetize. The right way to to focus on growing the product. ... WA ... as an independent co would not have been able to focus purely on growth. ... I don't personally think that ads are the right way to monetize messaging.
Jan: Adv is not the right way to go. We have a v solid monetization situation in place. Monetization is not going to be a priority for us. He focuses on things in 5 or 10 years from now. ... in 2020, or 2025. ... 5 billion people will have a smartphone and we will have a potential for 5 billion users to give us money ...
How is WA subscription plan going? ... What portion of WA users overlap with FB?
David: We really don't know. Based on penetration there must be a level of overlap but we don't have analytics or knowledge to quantify that.
Can WA be used to leverage FB?
Zuck: (No.) Jan and Brian his cofounder ... 50 people at their company have built a product that has almost half a billion people using it after 5 years. No one has done that. (It would be dumb to interfere.) Says he shares strategic thinking with Jan.
Any other product extensions for WA? What are the strongest countries for WA over Messenger?
Jan: Focused on making product faster better ... not very sexy ... but message speed is our focus ... you will see our product evolve, new features coming in 12 months ...
Zuck: Messenger evolved from Facebook chat ... a lot of the messages are not real time like a more informal email ... replies later in the day .. .WA is like SMS ... real time communication ... the world needs both ... continuing to invest in both.
What are demos of WA users?
David: WA has good penetration across all demos but you are not asked age when you sign up.
WA paid v non paid user breakdown? Geographic user-ship of WA v FB?
David: We don't have those details to share ... hasn't been a top priority and won't be. ... we don't have data to share on the geo breakdown.
Color on $19 bn valuation? Where is WA growth coming from?
David: We looked at other networks and their size and scale. ... The service they provide is extremely useful. Messaging is the no1 activity on smartphones. There are 1 billion smartphones out there - it's going to grow up to 5 bn in time ... so this is a valuable service that people are willing to pay for.
No problems expected.
Last Q: Competitive dynamics ... LINE, WeChat, etc.
Zuck: Messaging is a very competitive space ... WA is the clear global leader ... in some countries other messaging services are bigger but in most countries WA is clear leader ... these guys excessively focus on simplicity speed and relaibility ... they do not rest until their service is faster than SMS ... that is their technical advantage ... they are obsessing over perfecting messaging. ... that is the right strategy. ... over time people will want to pay for the best one.
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