Emerging Technology

Mobile Investing

App investing took a turn towards mobile messaging in 2014, with Facebook purchasing WhatsApp and China’s Alibaba investing in Tango.

Currently, there is no dominant mobile messaging app, and investors are taking bets on which will rise to the top.
2014 saw major investments in mobile messaging apps, with Facebook (NASDAQ:FB) purchasing WhatsApp for $19 billion and Chinese giant Alibaba (NYSE:BABA) investing in Tango. These deals demonstrate investors’ faith in the growth potential of mobile messaging apps, which seem slated to replace existing SMS communication systems.

Facebook acquires WhatsApp

Facebook CEO Mark Zuckerberg made headlines in February for his decision to acquire mobile messaging app WhatsApp for $19 billion. Prior to the deal, WhatsApp founders Jam Koum and Brian Acton had been wary of venture capital investments. Accordingly, both Koum and Acton owned large stakes in the company. According to Forbes, Koum (with a 45-percent stake in the company) pocketed $6.8 billion after the deal, while Acton received $3.5 billion after taxes.
The Economic Times reported that the deal was criticized for its whopping price tag; Facebook has never paid more for a company, and for the sake of comparison, bought Instagram in 2012 for $1 billion. However, some analysts saw value in the deal. As Time states, the app has an extraordinarily large reach, with over 600 million users spanning Europe, Asia and the Americas. The Globe and Mail commented, “Facebook hasn’t just invested $19-billion to take over a popular instant messaging app. They’ve invested in the possibility of dominating mobile communication, using voice, video and text. The upside, should they execute well, is probably larger than most of us can imagine.”

Alibaba invests in Tango

China’s Alibaba also invested in the mobile messaging market in 2014, making a $215-million investment in messaging and calling app Tango. News of the deal came just weeks after Facebook bought WhatsApp, and Bloomberg reported that Rakuten (TSE:4755) responded by buying rival messaging app Viber. According to Forbes, the deal gives Alibaba anywhere between a 20- and 25-percent stake in the company, which was valued at $1.1 billion after the investment.
Tango competes with Microsoft’s (NASDAQ:MSFT) Skype and Apple’s (NASDAQ:APPL) FaceTime to provide free video calls, in addition to texting, photo sharing and games. Reuters reported that the deal will help Alibaba compete against rival Tencent Holdings (HKEX:0700), which owns Asia’s massively popular messaging app WeChat.
Although Tango’s user base is smaller than that of WeChat and most of its other competitors, it is growing quickly. The Wall Street Journal states that its membership doubled over the past year to more than 200 million registered users and 70 million active users. Alibaba’s investment will help Tango develop the infrastructure necessary to support this growth. Tango co-founder Eri Setton told Reuters that his platform is primed for success, commenting, “the platform approach I believe is the winning strategy.”

Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.

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