Strategic
Management
(STMBJ22-3) Term 3
case analysis on
$19B 4 txt app
WhatsApp...omg!
PRESENTED BY
GROUP 06 SECTION-B
BJ22068 | HARSIMRAN SINGH
BJ22090 | RAKESH K. PANIGRAHI
BD22103 | SANDEEP BHAKAT
FB22007 | LALIT KUMAR
L22006 | ABHISHEK BARATAM
L22007 | ALEN T. KATTAKAYAM
L22009 | ANUBHAW KUMAR
L22010 | NAUMISHA BESWAL
About the acquisiton
Acquirer:
Company: Facebook, Inc. (now
Meta Platforms, Inc.)
Revenue: $12.46 Billion (2014)
Mission: “to give people the Acquisition details
power to share and make the Initial Announced amount: $19 billion
world more open and connected" Final price of acquisition: $22 billion, out
of which
$4.6 billion in cash
178 million shares
Target:
46 million restricted stock units
Company: Whatsapp
Revenue: $10 million (2013)
Mission: Focus on messaging
service, not extraneous add-ons
Competitors of whatsapp
Facebook
WhatsApp WeChat Line Kakao Talk Viber
messenger
Based in USA China Japan South Korea Japan USA
Launch Year 2009 2010 2011 2010 2010 2011
Focus on
Phone calls,
messaging Messaging, send
Video call, text & voice
service, Ohoto in-app send text, messages,
text & voice messages, in-
sharing, voice games, e- picture, and voice
Features messages, app games,
calls, video commerce voice recordings,
share photos, stickers,
callsnot and mobile messages photos and
in app games comic books
extraneous reading stickers
add-ons
Users (July Not
600 MAU 438 MAU 430 RU 150 RU 608 RU
2014) available
1st year free, selling
Revenue $0.99 from in app in app in app stickers & advertiseme
model 2nd year purchases purchases purchases emoticons nts
onwards packs
Revenue Not
$10.2 $32-$49 $338 $203 $608
(2013)(mn) available
MAU= Monthly Active users; RU=Registered Users
1. Do you think that Facebook’s purchase of Whatsapp for $22 Billion
is either:
a. The most outrageous waste of shareholder funds or
b. The deal of the century?
Explain your reasons.
We believe that acquisitio of WhatsApp by Facebook was an appropriate
move by the Facebook. Facebook was facing a slowdown in user growth,
particularly among teenagers, while interest and engagement in mobile
messaging applications were on the rise. Additionally, the chat applications
segment was becoming more competitive, with Facebook's rival Google
reportedly offering to purchase WhatsApp for $10 billion.
With WhatsApp's diverse presence in developing countries and international
markets where Facebook had struggled to gain traction, acquiring the
messaging platform could enhance Facebook's engagement metrics through
integration with WhatsApp. This acquisition aligned with Facebook's mission
to enable individuals to share and create a more open and connected world,
and would allow both companies to realize their shared vision. Facebook
was also optimistic that the acquisition would replicate the success of its
Instagram purchase, which had become one of its most profitable
acquisitions.
Moreover, WhatsApp was going to become a competitor for Facebook. By its
acquisition, Facebook essentially eliminated its competition.
We have performed a valuation of WhatsApp based on discounting EBITDA.
The calculations of Revenue and EBITDA has been obtained through "Exhibit
17: Whatsapp Monetization Portal".
Valuing WhatsApp
In the Exhibit 17, the WhatsApp Monetization Potential has been given. We have used
the potential EBIDTA projected over 10 year period and discounted it to present
value with WACC of 10%.
Since this is a growing sector, We have taken 5% as perpetual growth rate.
Figures are in millions
Data for calculation has been obtained from Exhibit 17 of the case
Using our assumptions, we found that with the present value of Whatsapp is
approximately $40 billion, which is almost double than the current acquisition price
of $22 billion.
This valuation has assumed that WhatsApp will run on a subscription model.
However if facebook is able to monetize WhatsApp via other avenues, then the
acquisition will create more value for Facebook.
Issues with Facebook
1. Slowing growth and engagement
Lack on engagement from teens
Competitors from other apps- Snapchat, Instagram, Tumblr, WeChat,
and Whatsapp
Competition from regional social networks
Stalled growth in MAUs in developed countries
a. Difficult to monetize Asian users
2. Shift from web based company to a mobile-first company
3. Privacy concerns
Mobile Messaging market
Three categories in 2014
Instant messaging (IM)- available both via smartphone or computer;
needed internet
Traditional text messaging (SMS) - mobile only, via carrier’s network; text
only
Multimedia messaging service (MMS): supported multimedia, expensive;
mobile only
Why Whatsapp was important for facebook?
Growing demand for Insta messaging services among smartphone users
Projected revenue by chat applications expected to grow at 123.61%
CAGR from 2013 to 2017
Less data usage by whatsapp enabled it to cater developing economies
with low data penetration
Higher user engagement than facebook(70% vs 61%)
Higher daily active users (DAU) than facebook
More appeal to younger generation
User base diverse over international markets which can be used by
facebook to expand its global footprint
2. If it was up to you, how would you monetize Whatsapp?
Note: Present one specific option (in brief) which is different
from what Facebook/Meta is currently (as of 2023) doing
One possible way to monetize WhatsApp is by introducing a paid subscription
model for businesses that use the platform for customer service and engagement.
This model would allow companies to use additional features and tools that can
improve their customer service, such as automated responses, chatbots and
analytics.
They can order different service levels in this model according to their needs and
budget. For example, a basic subscription may offer limited features and support,
while a paid subscription may offer more advanced features and specialized
support.
This would be different from what Facebook/Meta is doing now, as they monetize
WhatsApp mainly through targeted advertising and offer business accounts a free
limited version of WhatsApp Business which includes features such as the ability to
create a business profile, automated messages and metrics. By offering businesses
a premium subscription model, WhatsApp can generate revenue while providing
added value to its users and encouraging them to use the platform more often.
