WhatsApp Actually Losing Millions Yet Closed a $22 Billion Sell-out with Facebook (NASDAQ:FB)

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By Erik Waters on October 29, 2014 Social Media

When Facebook (NASDAQ:FB) bought WhatsApp for almost $22 billion in the first half of 2014, industry analysts anticipated that the mobile messaging service was making millions in profit. Turns out, the multi-billion dollar deal was signed even though WhatsApp was making losses of over $232 million, according to a recent SEC filing.

At the date when WhatsApp was bought, it had a little over 450 million users on it, one of the highest numbers of users in the world using any mobile messaging app. According to surveys, many Facebook (NASDAQ:FB) users had begun to prefer WhatsApp for connecting with family and friends, thanks to the group messaging feature on it. Maybe this is what prompted Zuckerberg to buy-out the startup, even though it was making a loss.

WhatsApp is not completely free; the company is ad-free, hence charges its users a $0.99 annual fee to generate revenue. There is no initial charge on the messaging service, and users get to use the service for free for the first year. This low fee is easily affordable by all WhatsApp users. However, not everyone is on board and pays for the service when it asks for subscription charges. According to the SEC filing, WhatsApp was able to generate only $15 million revenue in the first quarter of 2014.

It is not entirely known why there is such a large gap between revenue and user figures. If every WhatsApp user pays the due fee, the service should be able to generate annual revenue of approx. $450 million. The gap hints at a possible evasion by WhatsApp users, however there may be something wrong within the WhatsApp subscription model itself.

Most of WhatsApp loses this year stemmed from stock sales as well as offering options of stock to employees. However, the company’s net profit before appropriations still resulted in a net loss. Last year, the company earned only $10 million in revenue, and incurred a loss of $139 million.

Say what we may, Mark Zuckerberg is not concerned at all. The young billionaire CEO of Facebook (NASDAQ:FB) Inc. still considers the mobile messaging app to be in infancy, and is not worried about the millions he is losing with it. In a recent speech to Facebook (NASDAQ:FB) investors, Zuckerberg stated that for a product to be recognized as a business, it must “have about 1 billion people using [it]”. Talking about WhatsApp, Zuckerberg further said, “Once we get to that scale, then we think that they will start to become meaningful businesses in their own right.”

Speaking about the future, Zuckerberg also revealed big plans for Facebook (NASDAQ:FB) in the future. He said the company will be increasing its expenses by almost 70% every year till 2015, as it aims to increase staff numbers. The news hinted at further risky acquisitions by Facebook (NASDAQ:FB), resulting in a fall of 6% in its share value.

Facebook (NASDAQ:FB) has been one such entity which has defied all odds, and proved wrong much criticism by Wall Street analysts. Whether WhatsApp will prove fruitful for Facebook (NASDAQ:FB) in the long run is now a question of time.