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Nobody has answered the OP's question: why $18B? why not $18M or $523M?
Isn't the price somewhat arbitrary? WhatsApp's market value is based not on revenue but on what the highest bidder will give them. WhatsApp probably had an idea of what the big players (Apple, Google, Facebook) might offer and that becomes what their going rate is. I don't know if this is how the amount of an offer is determined but it sounds plausible to me.
Thus neither company values the deal at the headline grabbing number because the opportunity costs are low. Facebook doesn't have a lot of options to move that much equity and WhatsApp does not have a long list of potential buyers with $4 billion in cash plus the discounted value of Facebook equity.
I read a comment that said people run their entire businesses on it, and that in many places there is a 90% chance that someone you're talking to has WhatsApp on their phone. Sounds pretty valuable to me. It's a communication platform, what's more valuable than communication. You might say they don't have enough lock-in, that someone else could come along and take their business. True, but I don't think that changes…
Imagine sending money via What's App.
They have 400 million active users now and will be around billion users by next year. If they charge the usual $1/yr in the emerging markets and say $5/yr in the developed markets that will get them around $3 billion revenue. Also they have almost 90% gross margins as from what i read its a tight operation with just 50 people and 600 servers.
So with a $2.7 billion EBITDA by 2016 the $19 billion dollar valuation is just 7x multiple and very reasonable. This is not even considering the strategic value of WhatsApp to Facebook!.
WhatsApp is not really free but supposedly cost $1/year from the second year. Yes they are doing free renewals for now and i am guessing it will not be long they begin to charge again. They have 400 million active users now and will be around billion users by next year. If they charge the usual $1/yr in the emerging markets and say $5/yr in the developed markets that will get them around $3 billion revenue. Also they…
Firstly, Facebook doesn't need to monetize it. WhatsApp seems to be generating enough cash to run on its own. Instead, WhatsApp is a data-cow (I, phantom_oracle, officially coin the term data-cow on 21/2/2014 :P, which is the 21st century equivalent of a cash-cow).
WhatsApps value proposition lies in the data it has access to. I've already read on pandodaily/wired/one of those tech blogs that explains that whatsapp can access your private data, as it is in their terms.
So now think about it.
WhatsApp is always on/connected, so user tracking and trend-creation becomes easier.
People discuss a lot of things on it too, thus a lot of personally identifiable info exists (think, planning meals with your loved one, chatting to your kids, etc.).
By combining these 2, FB can improve its targeted ads on the FB platform and Instagram. Link all three and they basically have the equivalent of a user-database that is the envy of the NSA (pictures, messaging, location, etc, etc.).
If FB can improve its ad-revenue by even US 1 billion each year through this purchase, then the real ROI will be over 19/16/14 years (whatever the true amount they paid is).
Chances are, it will increase by a lot more than 1 billion a year. There's just too much data they control.
If you want to spot how they might monetize on their data, look at FB for jobs about natural-language processing (now or in the past). Also look at their ad pages to see if they boast about targeted ads.
That's how much it's worth to Facebook. Not to you and I but to Facebook.