Meta’s Acquisition of WhatsApp
Team FinBuzz
IIT Roorkee
Gaurav Patni
Pratham Jana
Shibasish Banerjee
Social Media and Messaging Industry Overview
❖ Explosive Growth: The social media and messaging
industry is witnessing exponential growth. Platforms like
Facebook, Twitter, WhatsApp, and WeChat are gaining
massive user bases, fueled by increasing smartphone
penetration and improved internet access.
❖ Market Size: As of 2014, social media platforms have billions
of users globally. Facebook leads the pack with over 1.3
billion monthly active users (MAUs), while messaging apps
like WhatsApp and WeChat each have around 400-500
million MAUs.
Competitive Landscape
Meta : Company Overview
Financial Performance
Revenue: Meta’s revenue for 2014 was
approximately $12.5 billion, a significant
increase from $7.9 billion in 2013.
Net Income: Meta reported a net income
of around $2.9 billion in 2014, up from
$1.5 billion in 2013..
BUSINESS MODEL Previous Acquisitions
Most popular Social Media site
Core Product: Meta, a social networking
➔ Overall growth has slowed as other Instagram - April 2012
service that allows users to create profiles,
sites have seen increase in their
connect with friends, and share updates,
usership.
photos, and videos.
➔ Though the engagement of existing
Meta users continues to grow. Spool - July 2014
Major source of revenue is advertising.
➔ 56% of adult users use Meta.
➔ Advertising revenue which
accounts for 97% total revenue. Drop.io - Oct 2010
➔ Payment and fees by social
gaming and in-app purchases.
WhatsApp : Company Overview
WhatsApp App Activity
Revenue
Founded:
WhatsApp was founded in 2009 by Jan
Koum and Brian Acton.
100M videos sent per
Key features: day.
● End-to-End Encryption:
WhatsApp places a strong emphasis
on privacy and security. 19B messages sent
and 34B received.
● Simple Messaging:
WhatsApp focuses on providing a
600 million photos
core messaging service, allowing
uploaded
users to send text messages, voice
messages, images, and videos.
The company generates revenue from its
subscription model. 450M active users
User Base:
● WhatsApp has over 450 million
Company is valued at 19B USD a substantial
active users. >100% Year Over
figure that reflects its massive user base and
● 1 million users signing daily. Growth
growth potential.
Meta’s Strategic Goals through WhatsApp Acquisition
Monetize messaging
Leverage network Expand user base and Strengthen its presence
services through
effects for global engagement across in the mobile
advertising and
connectivity. platforms. messaging market.
business solutions.
Alignment with WhatsApp:
User Base Expansion: WhatsApp's large, global user base accelerates Meta’s goal of connecting the world.
Mobile Dominance: Complements Meta’s mobile-first strategy, extending its reach into messaging.
Monetization Potential: WhatsApp integration with business APIs and potential advertising opportunities supports Meta's
revenue generation goals.
Motivations for the Acquisition:
Global Reach:
Competitive Advantage: Synergy Potential:
Access to WhatsApp’s
Pre-empting competition in Cross-platform integration
v the messaging space (e.g.,
extensive user base
with Facebook Messenger
across key emerging
from Google, WeChat). and Instagram.
markets..
Business Life Cycle Analysis
META WhatsApp
Maturity Phase: Meta is in the maturity Maturity Phase: WhatsApp, too, is in the
stage of its life cycle, characterized by a
saturated user base and a shift in focus from
STAGE maturity phase, with a massive global user base
and high penetration in key markets.
rapid growth to sustaining revenues through
diversification.
Challenges: Monetization remains a
Challenges: Slower growth in new users, challenge, with WhatsApp historically being free
increased regulatory scrutiny, and competition and ad-free, leading to slower revenue
from emerging platforms like TikTok. generation.
SUSTAINED GROWTH ENHANCED RESOURCES
Impact of
NEW REVENUE STREAM MONETIZATION PUSH
Acquisition
DIVERSIFICATION SYNERGY BENEFITS
Valuation of WhatsApp: Comparable Companies Analysis
Comparable Companies Assumptions
Viber: Another popular messaging app at the time, acquired
In the case of WhatsApp in 2014, a traditional CCA is challenging due to
by Rakuten in 2014 for $900 million.
the scarcity of publicly available financial data.
LINE: A messaging app that’s particularly popular in Japan, Given the limited revenue, traditional multiples like Price-to-Earnings
(P/E) or EV/EBITDA aren't applicable for WhatsApp. Instead, valuation
with significant user growth and revenue from in-app
could be based on user metrics like EV/MAU.
purchases and advertising.
KakaoTalk: A dominant messaging app in South Korea, Final Valuation
known for its diverse range of services beyond messaging,
such as games and shopping. Average EV/MAU of comparable companies: $(9+165+21+169)/4 = $91
WhatsApp Valuation using average = ($91 * 450 million)
WeChat: Although more diversified and larger in scope,
WeChat is a key player in the messaging app market, $40.95 billion
especially in China.
Valuation of WhatsApp: Discounted Cash Flow (DCF) Analysis
Assumptions Calculations
User Growth: Estimated growth rate of 20% annually for the next 5 years, Terminal Value (2024): $12,441.1 million (Gordon Growth Model)
slowing down to 10% and then 5%. Present Value of Terminal Value (Discounted to 2014): $4,643.6 million
Monetization: WhatsApp introduces monetization strategies such as ads,
subscription models, and payments, gradually increasing ARPU (Average Sum of Present Value of FCF (2014-2024): $1,847.8 million
Revenue Per User).
➔ Starting ARPU: $1 (based on the $1 annual fee)
➔ Growth in ARPU: 10% annually for the first 5 years, then stabilizing. Final Valuation
EBITDA Margin: EBITDA margin starts at 20% (due to low initial
monetization costs) and increases to 40% as the business scales.
Capital Expenditures (CapEx): Estimated at 10% of revenue.
Depreciation & Amortization: Negligible compared to revenue.
$6.5 billion
Tax Rate: 25% & WACC: 10%
Growth Rate: A long-term growth rate of 3% after 2024.
Valuation of WhatsApp: Precedent Transactions
Average Price Per User Low-End Valuation (Viber-like) $1.35 billion
Average Valuation $10.14 billion
$22.53 High-End Valuation (Skype-like) $22.5 billion
Discounted Cash Flow (DCF) with Synergies
Potential Adjustments for Synergies
Synergies
Enhanced Revenue Growth: ARPU growth rate increases to 15%
annually (instead of 10%).
Cost Reduction: CapEx was reduced by 5%, assuming that Meta's
Revenue Cost existing technological infrastructure would reduce the need for standalone
Synergies Synergies
capital investments by WhatsApp.
EBITDA Margin Improvement: Increased by 5%, leveraging cost
efficiencies, improved operational strategies, and shared resources from
Reduced
Increased User Growth Shared Meta.
Marketing
Monetization Acceleration Infrastructure Expenses Higher Terminal Growth Rate: Assume a terminal growth rate of 4%
(instead of 3%) due to synergies.
Sum of Present Value of FCFs = $2.4 billion
Present Value of Terminal Value = $6.03 billion Final Valuation $8.43 billion
Investment Recovery Analysis
Final WhatsApp Valuation
(average of all the three valuations)
$19.17 billion
Optimistic Scenario Base Case Scenario Pessimistic Scenario
How WhatsApp Complements Meta’s Existing Services and Strategic Objectives
Enhancing
Strengthening Data Expanding Global Monetization
Communication
Strategy Reach Opportunities
Ecosystem
❖ Although WhatsApp is ❖ WhatsApp’s Business API ❖ WhatsApp's popularity, ❖ WhatsApp’s Business
end-to-end encrypted, and planned features like especially in international API and planned features
aggregate data and in-app payments align with markets, complements like in-app payments
usage patterns contribute Meta's monetization Meta's goal of connecting align with Meta's
to Meta's broader data strategy. the next billion users. monetization strategy.
strategy. ❖ These tools enable Meta to ❖ It allows Meta to penetrate ❖ These tools enable Meta
❖ This helps Meta refine its diversify its revenue deeper into regions where to diversify its revenue
advertising and business streams beyond Facebook or Instagram streams beyond
offerings without advertising, leveraging may have limited adoption, advertising, leveraging
compromising individual WhatsApp’s massive user particularly in emerging WhatsApp’s massive
privacy. base for future growth. markets. user base for future
growth.
Market Penetration
Market Penetration Strategies
1 Targeting Untapped Markets 3 Strategic Partnerships
❖ Concentrate efforts on areas having ❖ Work with local telecom providers
low internet penetration. and provide affordable internet
❖ Tailor products and services to the services
needs of these markets including ❖ Collaborate with fintech and banking
lightweight apps for these regions services to provide mobile payments
through WhatsApp
2 Infrastructure Investment 4 Localized Marketing Efforts
❖ Deploy mobile internet solutions to ❖ Develop localized marketing
provide temporary internet access in campaigns that resonate with
underserved regions. regional cultures, languages, and
❖ Invest in satellite internet, undersea user behaviors.
cables, and terrestrial fiber optics to ❖ Promote WhatsApp as a tool for local
extend internet access to remote areas. businesses to reach customers
Potential Synergies from Acquisition
Integration with Cost Savings and Monetization Data Synergies and
User Base Expansion
Facebook’s Core Operational Opportunities Targeted Advertising
Products Efficiency
While WhatsApp’s founders By combining WhatsApp
WhatsApp will bring an WhatsApp can be integrated
Combining WhatsApp’s were initially opposed to data with Meta’s existing
additional 450 million with Meta’s existing products
lean operational model heavy monetization, the data on user behavior and
monthly active users (like Meta Messenger,
with Meta’s resources can platform’s massive user preferences, Meta can
(MAUs) to Meta’s Instagram, and Meta
lead to cost efficiencies in base offers potential for enhance its targeted
ecosystem. Many of these Marketplace) to provide
areas like server future revenue streams advertising capabilities,
users are in regions where seamless cross-platform
infrastructure, data through ads, subscription leading to more
Meta’s penetration is lower, communication and enhance
storage, and customer models, or business personalized and effective
such as Europe, Latin user engagement.
support. communication tools. ads.
America, and India.
If Meta can monetize even a small If Meta were to gradually
By offering a unified messaging By leveraging Meta ’s existing Better-targeted ads could
percentage of these new users at introduce monetization, the
experience, Meta can increase infrastructure, WhatsApp could increase Meta’s ad revenue by
a similar ARPU (Average potential revenue could be
user retention, reduce churn, and reduce its operating costs, thus improving click-through rates
Revenue Per User) to its core significant, especially if
encourage more time spent improving profitability. (CTR) and cost per click (CPC)
platform, the incremental revenue WhatsApp maintained its high
across its platforms. for advertisers.
could be substantial. engagement levels.
Risks Associated with Acquisition
Regulatory Risks Market Risks Integration Risks
Antitrust Concerns User Backlash Corporate Culture
A WhatsApp acquisition by Meta WhatsApp users, especially Integrating WhatsApp into Meta
would face strong antitrust scrutiny, privacy-conscious ones, might could be challenging, risking
especially in the EU and U.S. due resist further integration with Meta, internal resistance and potential
to concerns over Meta's dominance potentially driving them to harm to WhatsApp’s
in digital communication. alternatives like Signal or Telegram. privacy-focused culture.
Privacy Regulations Technological Integration
Meta would need to comply with Competitor Response Integrating WhatsApp's
strict privacy laws like GDPR and Competitors like Telegram and infrastructure with Meta’s
navigate conflicts between WeChat could gain users if ecosystem could be challenging,
WhatsApp's encryption and WhatsApp's integration with Meta especially regarding data
government data access demands faces issues. migration, security, and service
in certain regions. reliability.
Executive Summary
Reasons for
Recommendation Acquire WhatsApp Congeneric Acquisition
Related but distinct Complementary
Type of Acquisition Congeneric operations of services of
Aimed at Market
Expansion
companies companies
Supporting Arguments
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