Google made last-ditch effort to block WhatsApp-Facebook deal, was willing to pay more than $19B

1356789

Comments

  • Reply 41 of 168
    crowleycrowley Posts: 10,453member
    You can't simply reverse engineer user awareness and mindshare. They're paying for what it has, not what it is (in code and staff).
  • Reply 42 of 168
    crowleycrowley Posts: 10,453member
    How many of their 400M+ users are already Facebook users, do you think?

    The market and the analysts –perhaps even you -- appear to be treating this number as 0%.
    Does it matter much if they monetise them separately?
  • Reply 43 of 168
    MarvinMarvin Posts: 15,310moderator
    How many of their 400M+ users are already Facebook users, do you think?

    The market and the analysts –perhaps even you -- appear to be treating this number as 0%.

    It's possible that every WhatsApp user is a Facebook user but Facebook has 1.2b users so 750m Facebook users can't already be WhatsApp users. This means there's room to grow the subscription revenue.

    Also, the crossover doesn't matter as far as the current subscription revenue goes. 450m users still means $450m per year in revenue. While that would take a while to recoup $19b if it doesn't grow, there's not really a time limit on how long Facebook or WhatsApp will be around.

    The success of this move really depends on how users react to it and if they start dropping the app in large numbers.
  • Reply 44 of 168
    chris_cachris_ca Posts: 2,543member
    Quote:

    Originally Posted by AppleInsider View Post



    As talks between Facebook and WhatsApp began to draw to a close, Google Chief Executive Larry Page made a last-ditch effort to block the deal, and was even willing to outdo the $19 billion agreement the messaging app eventually reached with Facebook.

    "We HAVE to get all that user data and we CANNOT allow others to have it!", Eric & Larry yelled in unison.

  • Reply 45 of 168
    quinneyquinney Posts: 2,528member
    dasanman69 wrote: »
    yojimbo007 wrote: »
    That is so insightful and analytical... Now i understand why it is wirth 19 billion.
    You my friend are brilliant !

    Well thank you. I do get the occasional epiphany :lol:

    Try this: 700
  • Reply 46 of 168
    Quote:
    Originally Posted by Crowley View Post




    Does it matter much if they monetise them separately?

     

     

    Quote:
    Originally Posted by Marvin View Post




    It's possible that every WhatsApp user is a Facebook user but Facebook has 1.2b users so 750m Facebook users can't already be WhatsApp users. This means there's room to grow the subscription revenue.



    Also, the crossover doesn't matter as far as the current subscription revenue goes. 450m users still means $450m per year in revenue. While that would take a while to recoup $19b if it doesn't grow, there's not really a time limit on how long Facebook or WhatsApp will be around.



    The success of this move really depends on how users react to it and if they start dropping the app in large numbers.

    I honestly mean no offense, and I hope you’ll take it in the spirit of the discussion, but I feel compelled to point out that these are the kinds of rationales that end up justifying a $170B in market cap for a $7B in revenue company like Facebook, a $16+B purchase price for a $450M revenue company like WhatsApp, and $4B in purchase price for a zero-revenue company like Snapchat.

     

    ‘Revenue’, and even worse, ‘revenue-per-user.’

     

    Companies are worth their expected future cash flows discounted at the appropriate risk-adjusted cost of capital, including all future growth prospects, no more no less. That is not rocket science or some academic pie-in-the-sky, but simple fact.

     

    If Facebook gets to double-count every time it ‘acquires’ a user that it already has, I guess it won’t be too long before it becomes a trillion-dollar company. What a fabulous con game. Or value alchemy.

     

    FB is already being valued by the market for all the potential cash flows it brings. This is, of course, primarily based on advertising, which, in turn, is based on the lifestyle and consumption habits of its current users, including whether they consume products from the likes of whether it's P&G, Apple, McDonalds, Walmart, Snapchat, or WhatsApp. And their demographic and socio-economic characteristics. All that, and perhaps much more, given that each FB user is currently valued – I am guessing incredibly overvalued – at $126 per user. So it matters a whole heck of a lot whether this acquisition is bringing with it 10M net new users or 460M.

     

    I could conceivably buy an argument for why each new incremental user in this acquisition may be worth $35, although even that is a stretch. But we don’t know that number. Yet. At least, I have not seen it reported. We will get an idea when FB reports its next quarterly earnings. I am guessing that it’s going to be that’s far less than 460M.

     

    Now the issue of $460M in revenues (assuming each user currently pays $1 per year for the app). At the end of the day, companies are not valued for revenues or even revenue-per-user, but for their cash flows from their ability to monetize every user via whatever their business model is (advertising, subscription revenue, fees for corporate data mining).

     

    Let’s generously assume that WhatsApp will have FB’s margins as a stable business: that’s ~30%, or $138M per year. I won’t bore you with the details, but suffice it to say that under the most generous assumptions about future growth rates, risk-adjusted discount rates, reinvestment rates (after all, future cash flows don’t come free), etc., this is worth somewhere between ~$1B and ~$3B. That’s a far cry from $16+B. Justifying the latter price will require unbelievably high growth rates, achieved at essentially zero reinvestment, with a discount rate that is equal to the risk-free rate of interest.

     

    I could go on, but this is already long enough. 

  • Reply 47 of 168

    I would have been happy to take a few hundred thousand off Google to notify them if I heard any rumours about WhatsApp possibly entering into a deal, if they had bothered to ask me.

  • Reply 48 of 168
    Quote:

    Originally Posted by maccherry View Post



    Seriously, why the hell would you pay that much goddamn money for an effing app that can be easily reversed engineered and recreated? LOL!

    That's basically it.

  • Reply 49 of 168
    crowleycrowley Posts: 10,453member
    I honestly mean no offense, and I hope you’ll take it in the spirit of the discussion, but I feel compelled to point out that these are the kinds of rationales that end up justifying a $170B in market cap for a $7B in revenue company like Facebook, a $16+B purchase price for a $450M revenue company like WhatsApp, and $4B in purchase price for a zero-revenue company like Snapchat. 
    Huh?

    All I meant was that Facebook earn money from users on Facebook and now from users on WhatsApp. Whether users have an account on both doesn't really matter, Facebook now earn both ways.

    Apple sell a lot of iPhones to people who have Macs, but it's still two different chunks of profit on Apple's books, and they're happy with one, the other, or both (obviously they prefer both).

    Don't follow how you got to that comment to be leading to a false valuation. I wasn't commenting on the valuation at all anyway.

    Perhaps I've misunderstood; why do you think it matters how many of WhatsApp's users already have a Facebook account?
  • Reply 50 of 168
    Deleted.
  • Reply 51 of 168
    crowley wrote: »
    Huh?

    All I meant was that Facebook earn money from users on Facebook and now from users on WhatsApp. Whether users have an account on both doesn't really matter, Facebook now earn both ways.

    Apple sell a lot of iPhones to people who have Macs, but it's still two different chunks of profit on Apple's books, and they're happy with one, the other, or both (obviously they prefer both).

    Don't follow how you got to that comment to be leading to a false valuation. I wasn't commenting on the valuation at all anyway.

    Perhaps I've misunderstood; why do you think it matters how many of WhatsApp's users already have a Facebook account?

    'Huh!?' seems like a perfectly apt description of your ability to understand a basic finance argument (if you read the whole post, that is).
  • Reply 52 of 168
    crowleycrowley Posts: 10,453member
    Deleted.
  • Reply 53 of 168
    crowleycrowley Posts: 10,453member
    You talk about double counting people, but who cares, it's profit that matters to the health of a company, and they won't be double counting that; if a user earns them $15 from a Facebook account and $10 from a WhatsApp account then they earn $25 altogether, but for all intents and purposes those are two entirely different chunks of profit, and it makes no difference if they were from different users.

    Don't get your point.
  • Reply 54 of 168
    nikon133nikon133 Posts: 2,600member
    solipsismx wrote: »
    I always feel like an idiot when I read about these massive buyouts because I honestly can't comprehend exactly what about WhatsApp is worth even $1 billion, much less $16 or $19 billion.
    Such a large purchase price and a competition for it by two of the most well known internet-based companies today makes that news I want to hear about even though I have never had nor expect to have any interest in the app itself.

    Yeah... as one of local radio jocks said (and he was probably not the first one): "What's wrong with Mark Zuckerberg, does he not know he can download it from AppStore for free..?"

    I didn't really understand real value of FB either. It felt fake, over-inflated, artificial. And now, Mark is using some of his artificial worth to buy another over-inflated value. Kind of makes sense.

    But what do I know.
  • Reply 55 of 168
    Quote:
    Originally Posted by knowitall View Post



    This is a big opportunity for Apple.

    iMessage for Android would literally be a killer app.

    Isn't Google already trying to position Hangouts as the one stop shop for messaging on Android? Why else did they add SMS capability?

  • Reply 56 of 168
    adamcadamc Posts: 583member
    Quote:

    Originally Posted by MachineShedFred View Post



    Tech Bubble 2.0 is in full effect. Spend money now boys, because your stock is going to crash in the next 18 months when everyone figures out that you don't have a product, you don't have adequate revenue, and you sure as hell don't have a P/E ratio that makes institutional investors' socks roll up and down after the honeymoon is over.



    Today's $billion stock swaps are tomorrow's $billion write-downs. Enjoy it while you can.

    I am very sure you are referring to google, was i wrong?

  • Reply 57 of 168
    How could Google not simply create its own Facebook? How could Microsoft not simply create its own Google? Yes, I know both did that. They just were not successful at it.
  • Reply 58 of 168
    Quote:

    Originally Posted by Crowley View Post



    You talk about double counting people, but who cares, it's profit that matters to the health of a company, and they won't be double counting that; if a user earns them $15 from a Facebook account and $10 from a WhatsApp account then they earn $25 altogether, but for all intents and purposes those are two entirely different chunks of profit, and it makes no difference if they were from different users.



    Don't get your point.

    Here's the only point: from what I've read, their revenue (not cash flows, not profits) in 2013 were $20M. Not even close to the $460M I assumed for the sake of making a point.

     

    Perhaps you can explain to us how that's worth $19,000M?

  • Reply 59 of 168
    nkalunkalu Posts: 315member
    Ha ha ha! This one got away from Google.
    The innovation trend these days is buying up people's ideas.
  • Reply 60 of 168
    sflocal wrote: »

    Join the club.  I just can't see the math working here to justify such the huge price tag.  Many of my friends overseas use WhatsApp, even though I never heard of it until recently.  The ironic part is that my European friends all use iPhones.  So when I was there and they were trying to convince me to use WhatsApp, I turned the table around on them and showed them what iMessage, FaceTime Audio does.  They were in complete awe as to their iPhone having that native ability.  To them, it's all about apps.


    Most people are ignorant about what their iPhones can do.  I must have spent an hour with them going through all the iOS7 stuff and general concepts.


    They all jettisoned WhatsApp after that.


    I like WhatsApp mantra of charging $.99 cents to use it, be add-free, and they seem to be very good about privacy.  It's great for developing countries like India that have very expensive phone plans and use very cheap junk Android phones.



    I'm in this area of thinking too.  Then mentality of these people throwing so much money into these black holes just reeks of adolescents with money-management problems.  They have so much of it right now, and they became so rich at so young an age, they don't have the mental maturity to stop for a moment and think long-term about deals like this and whether there's value for the money.


    I think $16B is an absolute waste of money considering how much WhatsApp is making right now.  I read an article that the founder said they made about $20m last year and that's their first profit I think.  The math just doesn't add up.

    Interesting story about your European friends. Sounds like a typical story Europeans will tell about Americans. Ignorance can be a blessing. Mostly these stories are half-true at best. As a European living in the US I would say that WhatsApp gets more usage in Europe for good reasons. First of all the iPhone has a much lower market share in all European countries compared to the US. Android and even Windows Phone are pretty successful over there. So if someone like myself wants to be able to text all my european friends, an app like WhatsApp is way better suited than Apples iMessage. Messenger would be an alternative but facebook penetration is lower than in the us and people are more readily inclined to join whatsApp than FB. Heck, even my mom - a total technological illiterate - and her friends use WhatsApp for personal communication. Secondly, cross-border text messages are extremely expansive in Europe and are used regularly. Because of that WhatsApp has replaced carrier text and picture messaging to a huge degree in many European countries. The service offers true value to customers as they save a lot of Euros using it. That can potentially be monetized in the future.

    Still, the price is crazy high. But not compared to other internet companies. Twitter would cost twice as much if bought today, isn't profitable, has half the users and growth at a tenth of whatsApps pace. Amazon is a retailer selling stuff at miniscule margins. Yet nobody cares about its huge price tag. The difference with internet companies is that they can reach previously unimaginable numbers of people at a fraction of the cost of traditional companies. WhatsApp has built a service used by 450 million with 50 employees. As can be seen at FB once a social network achieves a profit, the margin expands rapidly with the companies revenue.
Sign In or Register to comment.