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Case - $19B 4 TXT App WhatsApp

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465 views2 pages

Case - $19B 4 TXT App WhatsApp

Uploaded by

mukta.p22357
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Case: $19B 4 txt app WhatsApp..omg!

Krutarth Mehta - 2301031


Aditya Dodamani - 2301244
Nischith A G - 2301036

1. Do you agree with Facebook's $22b purchase of WhatsApp? Why? Why not?"
Yes,
FB needs to diversify their portfolio because its main platform was already in the decline stage,
and Instagram was taking its stage (focused on different TG and different VP), but it didn’t have
something that could directly compete in the real-time messaging market, and Whatsapp allows
moving into a popular new segment of social networking.

WhatsApp had more MAUs than FB and is in the decline stage; as the two apps can drive users to
one another, FB can use the additional users added via WhatsApp.

Whatsapp was a dominant player in the market with high growth, and it had the potential to add
new features like calling and directly compete with current providers. Which in future can make it
one of the dominant players and directly compete with FB. As Google was also after WhatsApp,
FB couldn’t allow it to acquire WhatsApp. At last, FB’s mission was to ‘make the world more open
and connected’ and FB was lacking in this one segment where WhatsApp was operating in the
whole Social Media Network. Hence, we agree with this acquisition decision for all the reasons
mentioned above.

More factual data to support our argument is given below;


Massive user growth rate :
● WhatsApp had 600 million Monthly Active Users (MAUs) at the time of acquisition in
2014 and was projected to reach over 1 billion users by 2015.
● WhatsApp showed 70% daily user engagement, higher than Facebook’s 61% engagement​.
● In terms of global messaging, WhatsApp was handling 64 billion messages daily, nearly
matching the volume of SMS worldwide.This shows WhatsApp’s dominance in mobile
communication, making it a critical acquisition for Facebook to remain competitive.
Global Market:
● WhatsApp had significant user adoption in regions with costly SMS services
● 99% of iPhone users in Spain used WhatsApp, 96% in Argentina, and 90% in Brazil
● In Asia-Pacific, Europe, Latin America, and the Middle East, WhatsApp's user base grew
by more than 150% YoY
Revenue potential:
● WhatsApp's revenue was modest at $10.2 million in 2013, its simple business model —
free for the first year, then $0.99 per year — had vast scaling potential.
● Projections showed that if WhatsApp reached 2 billion users by 2020, with 70% of them
paying, it could generate $4.9 billion in revenue. This demonstrates that even without ads,
WhatsApp had strong long-term monetization opportunities through subscriptions.
● WhatsApp's dominance in developing markets, where SMS costs were high, further
bolstered its revenue potential, as users would be willing to pay for the service to avoid
high texting fees.
2. What analyses support your position? What are the underlying assumptions you are making?

Valuation Analysis: Facebook offered $22 billion for WhatsApp, paying $42 per MAU, significantly
higher than Viber’s $9 per MAU valuation.This premium indicated Facebook’s strong belief in
WhatsApp’s future growth potential, justifying the high price.

Growth Analysis: WhatsApp had 600 million MAUs and was growing at 1 million new users per
day. It was projected to reach 1 billion users by 2015, making it an attractive asset in a rapidly
growing market.

Monetization Potential: With estimates of 2 billion users by 2020, and if 70% of users paid $0.99
per year, WhatsApp could generate $4.9 billion in annual revenue. This provided a clear path for
long-term monetization without relying on ads.

Assumptions:

1. User Growth: WhatsApp’s user base will continue to grow exponentially, reaching billions of users
globally.
2. Monetization Model: The subscription model will scale effectively without alienating users.
3. Independence: Facebook will allow WhatsApp to maintain its ad-free, privacy-focused approach,
which is key to user retention.

3. Would you have accepted the $22b offer if you were Jan Koum or Brian Acton?

Yes, Jan Koum and Brian Acton should have accepted Facebook’s $22 billion offer for the
following reasons

High valuation:The $22 billion offer was far above WhatsApp’s revenue of $10.2 million in 2013
and its net loss of $138 million.
Facebook was paying $42 per MAU, much higher than competitor Viber’s valuation of $9 per
MAU.

Strategic Fit: WhatsApp would retain independence while benefiting from Facebook’s
infrastructure and resources for growth, allowing it to maintain its "No Ads, No Games"

Growth Potential: WhatsApp had 600 million MAUs and was projected to reach 1 billion in 2015.
Partnering with Facebook could accelerate this growth.

Monetisation: While WhatsApp's revenue model was modest, it had the potential to generate $4.9
billion by 2020 through user subscriptions.
The acquisition reduced risks associated with competition and scaling independently while
leveraging Facebook’s global reach.

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