Three simple charts explain Facebook and WhatsApp

A lot of people seem mystified about Facebook’s $16 billion acquisition of WhatsApp. For some folks, it’s about breaking free of an America-centric view of the Internet, as WhatsApp is larger than Twitter or LinkedIn by about 100 million members. For others, it’s not understanding why Facebook would spend that much. Here are three simple charts that should explain the logic of the deal from Facebook’s side.

First, let’s look at Facebook’s growth by region, in monthly active users.

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It doesn’t take a rocket scientist to figure out that Facebook has tapped out the US/Canada and even the EU to a degree. When we convert this to growth rates in percentage change, we get:

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The declines shouldn’t fool you – Asia, the Middle East, and Africa are Facebook’s fastest growing regions, at double the US/Canada and the EU. That’s part one of the puzzle. Facebook needs to continue its growth in its strongest regions. Here’s part two.

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Facebook’s largest, fastest growing regions aren’t driving revenue the way the US, Canada, and the EU are. There’s a 3.5x gap between the US and the growth regions. If Facebook could fix its revenue problem in those regions, it could add another billion dollars or more of quarterly revenue. That’s why WhatsApp makes a lot of sense. It already charges users $1 per year. It’s got revenue that is diversified, that isn’t advertising-based. That makes it super appealing for Facebook, which is incredibly reliant on advertising dollars. A diversified revenue source in the fastest growing regions has the deal make total sense.

The logic from WhatsApp’s side shouldn’t need a lot of explaining.

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  • http://www.businessesgrow.com/ Mark W. Schaefer

    I partially agree with you but took the logic a step further here: http://www.businessesgrow.com/2014/02/20/whatsapp/

  • David Thomas

    Hi Chris, thanks for explaining this. Their diversification makes more sense now!

    The first and third image don’t appear in my feed reader (Outlook). Was this planned to get me to visit the site?! (also, you may have fixed it since my copy is from 4:02 AM Pacific)

  • http://scottmonty.com scottmonty

    But here’s the thing: 1) How many of WhatsApp’s users are actually paying customers? The 9-month growth spurt mentioned in the news would mean that the recently added cohorts are still using the app for free.

    2) Let’s assume for a moment that the 70% daily engaged population is paying $1 a year. That’s $315 million in revenue, which means it would take 50.7 years to recoup the investment, assuming no further growth.

    Certainly revenue is a portion of the explanation, but the other is simply access and presence in markets that Facebook has been otherwise unable to dominate. It was a strategic purchase of something they wouldn’t have to spend the time and effort to build.