Explained: Why paying $19 billion for WhatsApp is SMART!

When news broke that Facebook paid a massive $16 billion and offered $3 billion in restricted stock to acquire WhatsApp, many thought the move was foolish. It was a bold move afterall, since Facebook paid a huge slice of its own worth to acquire a messaging app that only has 55 employees.

The Harvard dropout sees far into the future with this acquisition.

Keyboard warriors even took to Twitter and Facebook to lash out on the move. Why would Facebook pay such a staggering sum to acquire WhatsApp, who received a revenue of only $20 million in 2013?

Here are my top 5 reasons:

• WhatsApp could potentially be Facebook's largest competitor. Offense is the best defense here. With WhatsApp's incredible growth rate (1 million new users a day), it could eventually gobble Facebook's business. Yahoo once made this mistake by passing on the opportunity to acquire Google for $5 billion in 2002. Today, Google is worth almost $300 billion.

• WhatsApp has a huge user base, and more than 70% are on a daily basis. The company has 450 million users and around 315 million uses the messaging service daily. Plus, over 1 million new users are registering every day. Mark Zuckerberg is convinced WhatsApp would have 1 billion users soon. Facebook itself has 1.2 billion users, with 62% of them visiting the social network daily.

• WhatsApp has potential to gain large revenues. If WhatsApp charges its users $1 per year, it would receive $450 million revenue. WhatsApp could also sell "stickers" and do eCommerce like some competitors do. A few dollars might seem petty, but it will become astronomical when multiplied by 450 million users.

• With only 55 employees, operating cost is low, profit margin is high. If WhatsApp continues to grow at an exponential rate, its revenue will quickly surpass the $1 billion mark. With this gigantic revenue dwarfing the 55 employees' salaries, a huge chunk of revenue will be profits.

• It helps Facebook's Internet.org project to provide internet access to unconnected places, which accounts for two thirds of the world. WhatsApp is popular in developing countries, especially India, because it can be accessed through feature phones like the Nokia Asha line. This might just be the missing piece in the puzzle for Facebook.

Nokia Asha users are able to use WhatsApp's messaging service.

I would also like to point out that WhatsApp has double the number of Twitter users, and still grows faster than it. Since Twitter is worth $30 billion, shouldn't WhatsApp be worth more than that? Facebook paid only $19 billion in total to acquire WhatsApp. Well played.

Mark Zuckerberg insisted that WhatsApp will not replace Facebook Messenger. They serve different purposes and will run independently.

The 29-year-old CEO certainly has guts to make such an audacious move, but are the risks involved worth it?

Leave your opinions in the comments below!

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Written by: Kheng Wei Ang