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Insane in the Membrane: Facebook’s Purchase of WhatsApp for $19B


Insane in the Membrane: Facebook’s Purchase of WhatsApp for $19B
by Bob Fine

First off, I’m not going to argue against whether the purchase of WhatsApp by Facebook is a good strategic move or not. I have no doubt it will play an important role in the development of their mobile strategy.

But I am going to argue that valuing the company at $19 billion is not only insane and ludicrous, and so far out of whack, that it’s a reckless decision by the board of Facebook, and the shareholders should be outraged.

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Is $19 billion a ridiculous number to be paying for WhatsApp?

Let the numbers speak for themselves:

How much revenue does WhatsApp generate?

  • -WhatsApp generates $1 million/year

Other large Internet economy purchases from the last couple of years:

  • -Google paid $12.5 billion for Motorola Mobility in 2011
  • -Facebook paid $1 billion for Instagram in 2012
  • -Yahoo paid $1.1 billion for Tumblr in 2013

The league of companies that WhatsApp now falls under:

  • -Netflix has a market cap of $26 billion
  • -Western Digital has a market cap of $20.4 billion
  • -The Gap has a market cap of $19 billion
  • -Hershey has a market cap of $24 billion

Companies that are worth less than WhatsApp purchase price:

  • -Nintendo has a market cap of $17.4 billion
  • -Chipotle has a market cap of $17.1 billion
  • -SanDisk has a market cap of $18.1 billion
  • -Sony has a market cap of $17.8 billion
  • -Citrix has a market cap of $11.3 billion
  • -United/Continental Airlines has a market cap of $16.5 billion
  • -Starwood Hotels & Resorts has a market cap of $15.1 billion
  • -TD Ameritrade has a market cap of $18.3 billion

WhatsApp is now worth half of all of Yahoo:

  • -Yahoo has a market cap of $38.3 billion

The value of WhatsApps puts it in the same league as the top 20 richest Americans. A league that includes Bill Gates, Warren Buffett, Jeff Bezos, George Soros, Michael Bloomberg and Mark Zuckerberg.

You tell me how far out of whack this is? Am I wrong?

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Bob Fine

Engineer, Environmentalist, IT Architect, Publisher
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