Aging Facebook's $19 Billion Bid for a Fountain of Youth

After Wall Street finished choking on the news Wednesday night that Facebook was spending $19 billion to acquire a five-year-old startup, calmer heads stepped in to sort things out.
Yes, WhatsApp's purchase price, a mixture of $12 billion of Facebook (ticker: FB) stock and $4 billion in cash, plus $3 billion in restricted stock units, was staggering, analysts admitted. The most bullish of them, however, offered models rationalizing the price as a not-unreasonable fee to acquire each of the 450 million users the service has amassed.
That $19 billion represents $42 for each of those users, not far above the nearest comparable, the $30 Facebook shelled out two years ago to buy the picture-sharing service Instagram. Some point out, too, that the price was a mere 9% above what Google (GOOG) paid per user to buy video-sharing service YouTube in 2006, and quite a bit cheaper than the $131 per user that Twitter's (TWTR) share price represents.Continue.

In other words, by Thursday morning, the logic of the WhatsApp deal was completely self-referential, and utterly meaningless: The price was fair because Facebook had already set the bar, and because public investors were willing to pony up.
PERHAPS TO FACEBOOK CEO Mark Zuckerberg, Facebook's share price of $68.59 at Friday's close is a currency without cost or consequence. Both he and WhatsApp co-founder Jan Koum don't seem to be about money, per se, but rather about building things, which makes it all the more odd that so much money is involved in the deal.
In fact, the conference call Zuckerberg held with analysts following the announcement set a new standard for lack of financial disclosure. Having spent $19 billion of investors' money, Facebook was in no hurry to disclose revenue or profit figures. Asked how many people had signed up for the pay version of WhatsApp, Facebook's chief financial officer stepped in to point out that monetizing the service is not a priority. Nor was there any explanation of the math behind the seemingly obscene price. Even basic questions, such as how many people use both WhatsApp and Facebook, went unanswered.
Instead, Zuckerberg gushed: "They've built a product and a network that has almost half-a-billion people actively using it in five years. No one in the history of the world has done anything like that before."
But if there is little economic value at present, and if Zuckerberg can't articulate how the two companies are stronger together than separate, who cares? Why do the deal at all?
WhatsApp is a piece of software that can be downloaded to smartphones, including Apple's iPhone and phones running Google's Android operating system. It's essentially a replacement for text messaging. You can send not only written missives but also pictures, videos, and voice messages.
It's one of a gaggle of such programs that include Snapchat, Kik Messenger, Viber, Tango, BlackBerry's venerable BBM message service, the "iMessage" function on the iPhone, and Facebook's own Messenger program. A user signs on the first time with a cell phone number, so it's not really private, but it's more anonymous than services that require you to register with your name.
The appeal to consumers is obvious: You can make an end-run around carrier-messaging plans, especially those with exorbitant fees for texting loved ones overseas. WhatsApp charges nothing for the first year and then asks for a modest 99 cents per year thenceforth. Online testimonials are replete with satisfied users who tell of long-distance marriages saved or fiancées wooed abroad.