Whatsapp is encrypted in transit. It is still stored on their servers. So they can read your messages.
Edit: Link -- https://www.eff.org/secure-messaging-scorecard
Edit: Link -- https://www.eff.org/secure-messaging-scorecard
From a wired article about it:
"Textsecure has actually already been quietly encrypting Whatsapp messages between Android devices for a week. The new encryption scheme means Whatsapp messages will now travel all the way to the recipients? device before being decrypted, rather than merely being encrypted between the user?s device and Whatsapp?s server."