20/02/2014
FACEBOOK BUYS WHATSAPP FOR $16 BILLION: A DESPERATE MOVE.
Facebook's staggering $16 billion acquisition of WhatsApp is a sign of sheer "desperation", according to one industry watcher, who argues that the social networking giant has overpaid for the mobile-messaging start-up.
While the popular instant messaging platform has 450 million monthly active users worldwide - with 70 percent active on a daily basis – it has taken a cautious approach to monetizing its service, charging an annual subscription fee of $1 after a year of free use.
Investors appeared unimpressed with the deal, sending Facebook shares down as much as 5 percent in afterhours trading.This showcases the market is thinking this is not good management practice. Investors don't get excited about companies that aren't using good judgment.
They are losing user attention, and they are trying to buy them back by buying applications. You don't necessarily do it by acquiring because by so doing, you're only buying the users as they exist in that particular instant. You get users by creating capability in the site that you have.
Like most large acquisitions, the final verdict on this transaction will be determined in the future and depend on strategy and ex*****on over time, wrote Mark May, analyst at Citi in a note.
However, while we respect WhatsApp's position of focusing in the near term on user growth and engagement and not monetization, the experience of other similar messaging apps like WeChat, Kakaotalk and LINE suggest significant revenue opportunities in areas like games, stamps/stickers and payments/m-commerce.
If WhatsApp were able to monetize at a similar rate to some of these apps, it would imply $1.5-2 billion in revenue, according to Citi, based on the current size of its user base.