There was never any doubt that Facebook’s acquisition of WhatsApp — now valued at $21.8 billion — was about gaining users before profits. And still, a new regulatory filing lays bare the profound unprofitability of the messaging service for which Facebook traded a full tenth of its market value.
WhatsApp reported a meager $10.2 million in revenue last year, according to a filing with the Securities and Exchange Commission. The money presumably came from charging some users $1 a year to use the mobile application, which lets users share text messages and images, since WhatsApp does not allow advertising
To generate that revenue, WhatsApp spent heavily across the board. Research and development at the start-up, which employed just 55 people at the time it was sold, totaled $77 million, a figure that includes some salaries. General and administrative costs amounted to $18.6 million. In total, WhatsApp spent about $149 million last year, resulting in a net loss of $138 million. That far exceeds the net loss reported in 2012, a relatively modest $55 million.
For this, Facebook offered $4 billion in cash and $12 billion in stock, with the company’s founders eligible for an additional $3 billion in restricted stock. But as Facebook’s own stock has continued to rise, so has the value of the deal. The final tally came in at $21.8 billion, as the Deal Professor noted this month.
Of course, Facebook can afford to spend lavishly. Since announcing its acquisition of WhatsApp, Facebook stock has risen 20 percent, giving it a market value of $208 billion. Investors appear unfazed by the willingness of its founder, Mark Zuckerberg, to make huge bets on money-losing companies, instead trusting Silicon Valley logic over conventional measures of corporate worth.
And acquiring WhatsApp was never about making money for Facebook, at least not yet. Instead, Mr. Zuckerberg was enticed by the company’s swift accumulation of 450 million users at the time of purchase. “Services in the world that have one billion people using them are all incredibly valuable,” Mr. Zuckerberg said on a conference call at the time of the deal, anticipating further growth.
WhatsApp’s audience may indeed be valuable to Mr. Zuckerberg. But at this rate, it will take a couple millennia for the company to make back its purchase price. Using one common measure by which deals are assessed, Facebook may have set a new record of sorts. Based on the data in the new filing, Mr. Zuckerberg’s company paid about 2,000 times annual revenue for WhatsApp.
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