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Why Facebook's Big Buy Makes Perfect Sense

By Erin Kennedy and Evan Niu, CFA - Feb 21, 2014 at 9:00PM

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Facebook agrees to acquire WhatsApp for a whopping $19 billion. That's an awful lot to pay, but Facebook will be getting an awful lot in return.

Facebook (META 1.88%) is dropping a pretty penny to acquire WhatsApp, the young mobile messaging platform that has taken off. WhatsApp now boasts over 450 million monthly active users, with an incredible 70% of those accessing the service on a daily basis. That's an even higher level of daily engagement than even Facebook enjoys.

For $19 billion, Facebook will gain an important foothold in key strategic areas. Facebook's own Messenger has never been positioned as a mobile real-time messaging service. Since Messenger was historically a desktop service before expanding into mobile, it has social expectations somewhere in between SMS and email. In contrast, WhatsApp is very much mobile first and a legitimate SMS replacement. The two services has very different use cases.

Furthermore, the deal will also dramatically expand Facebook's international presence. In the U.S., players like Apple (AAPL -0.29%) offer iMessage for free. Apple grabbed 45% of smartphone sales last year, and if the majority of someone's contacts are on iMessage, there is less reason to sign up for WhatsApp. WhatsApp is incredibly popular in geographies like Europe, Latin America, India, and Asia, which is good news for Facebook.

In this segment of Tech Teardown, Erin Kennedy discusses Facebook's big buy with Evan Niu, CFA, our tech and telecom bureau chief.

Erin Kennedy owns shares of Apple. Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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