With WhatsApp, Facebook Bought $15 Billion Worth of 'Goodwill'

Photograph by Brent Lewin/Bloomberg

Facebook has consistently said it doesn’t expect its high-profile investments to develop into sustainable businesses immediately. Mark Zuckerberg, the company’s chief executive, gave a pretty high threshold for how developed a product has to be before it has to start carrying its own weight in Menlo Park.

“For us, products don’t get that interesting to turn into businesses until we get about a billion people using them,” he told investors during Facebook’s quarterly conference call on Tuesday, casually discounting pretty much every tech service that has ever existed.

In other words, expect patience from Facebook as it looks at ways to make money from WhatsApp, Instagram, and Oculus Rift, as well as the social network’s own messaging and search products. In filings Tuesday, Facebook gave some information about the finances of WhatsApp, a messaging service it acquired for $22 billion earlier this year. WhatsApp’s income comes entirely from small fees it charges some of its users. Last year that income was $10 million, and WhatsApp lost $138 million. To justify the sticker price, Facebook laid out how it valued the company. WhatsApp’s 600 million users were worth about $2 billion; its brand was worth $448 million; and its technology was worth $288 million. Goodwill accounted for $15.3 billion.

Instagram’s user base is at about one-fifth Facebook’s threshold for business relevance. The site has been showing ads for some time, but Zuckerberg dismissed a question about how that business is doing by saying that it’s still early in Facebook’s development.

Facebook can afford to be patient because its core advertising business keeps exceeding expectations. The company reported revenue of $3.2 billion in the third quarter, up 59 percent from a year earlier, and turned a profit of $1.15 billion.

Before it's here, it's on the Bloomberg Terminal.