Facebook’s (FB) Mark Zuckerberg is on the mergers & acquisitions hunt again … and his weapon of choice appears to be a rocket launcher.
Zuckerberg and FB have just agreed to shell out a staggering $16 billion in cash and stock for WhatsApp, a hyper-fast mobile messaging app. The deal is split between $12 billion in FB stock and $4 in cash, plus founders and employees will get $3 billion in restricted stock that will vest over a four-year period.
Sound crazy? It probably is. But at least for Zuckerberg, crazy is familiar.
If you’ll remember, Facebook’s last mega-deal was a $1 billion buyout of Instagram, which boasted revenues of exactly zero. While the deal was heavily criticized, the transaction has turned out to be key for Facebook’s mobile user growth, and also provided some much-needed relevancy with younger users.
Plus, the stock-heavy deal makes sense considering the massive run-up in FB stock. Facebook shares have appreciated by 140% in the past year, bringing FB’s current market cap to a whopping $173 billion. With FB stock at all-time high as of Wednesday, now’s as good a time as ever to start throwing some heft around.
Like the Instagram deal, the WhatsApp acquisition has already stirred up the Street’s skeptics. FB stock is off by nearly 5% in after-hours trading. It could be because of WhatsApp’s unique approach to business. While the company has a user base of more than 450 million, the company’s mantra is to only charge $1 annually, and only after a year of use. Plus, the company’s mantra has to date been to not have any advertising, and it has made a concerted effort to not collect user information.
Interestingly enough, Facebook’s deal has also sparked some good-natured speculation. BlackBerry (BBRY) shares were up around 8% as of this writing … with some investors perhaps hoping that BBRY’s own messaging service just got a little more attractive on the free market.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.