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Facebook buying WhatsApp for $19bn

Feb 21
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Facebook buying WhatsApp for $19bn

Social media behemoth Facebook is to buy messaging service WhatsApp for $19 billion (£9 billion) as it looks to appeal to younger people and expand into international markets.
 
It is Facebook’s biggest acquisition yet and is valued some way above its previous biggest buy, photo-sharing network Instagram, which it paid $1bn for in 2012.
 
WhatsApp, which has more than 450 million monthly global users, allows people to send unlimited text and picture messages to each other. It is proving extremely popular with users looking to avoid mobile phone fees.
 
The deal means Facebook will have access to the millions of people who use WhatsApp every month and allow it to strengthen its relationship with younger users, who are slowly starting to drift away from the social network.
 
But some analysts are warning that this latest in a string of big-ticket tech deals is a sign of an impending dot-com bubble.
 
‘Incredibly valuable’
 
“WhatsApp is on a path to connect one billion people,” said Facebook founder and CEO Mark Zuckerberg.
 
“The services that reach that milestone are all incredibly valuable. I’ve known Jan [Koum, WhatsApp founder and CEO] for a long time and I’m excited to partner with him and his team to make the world more open and connected.”
 
WhatsApp does not make money for advertising but makes money by charging users a subscription fee of $1 per year, as well as offering a free model.
 
Under the terms of the deal, Facebook will pay $4 billion in cash and approximately $12 billion in Facebook shares, plus $3 billion in stock to be granted to WhatsApp’s founders and employees at a later date.
 
The latest blockbuster takeover follows – and supersedes – Yahoo’s $1 billion acquisition of blogging site Tumblr last year the 2008 deal that saw AOL by social networking site Bebo in a deal worth $850 million.
 
‘Lot of scepticism’
 
But there are fears that such high-value deals will lead to a repeat of the fluctuations in the tech sector circa 1997-2000, when many online firms failed, some spectacularly.
 
Anthony Sabino, a business professor at St John’s University in New York, said the deal could raise concerns that Facebook, along with other firms, are pursuing acquisition with too much zeal.
 
"This could be seen as a microcosm of a bubble," he said. "I expect there to be a lot of scepticism about this deal. People are going to look at this and say, 'Uh, oh, did they pay way too much for this?"
 
However, Cathy Boyle, a senior analyst at research firm eMarketer, said the WhatsApp buy could prove valuable to Facebook.
 
"WhatsApp actually has greater penetration in a lot of international markets than Facebook," she told BBC News.
 
Observers thought that Facebook’s Instagram buy was massive, but that is now dwarfed by WhatsApp. Whether or not it proves to be massive success or a very expensive misfire remains to be seen.
 
The deal is expected to close later this year.
 
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