Why WhatsApp is worth $19 billion

Why WhatsApp is worth $19 billion(money.cnn.com)

1 points by limejuice 12 years ago | 2 comments

WhatsApp may be "cheaper" than most rivals: Facebook paid just $30 per Instagram user at the time (the service had 33 million users when Facebook bought it, compared to 150 million today). Facebook is spending $42 per WhatsApp user. But given WhatsApp's enormous user base, its purchase price might be a bargain compared some of its competitors. LinkedIn's (LNKD) share price values that professional social network at $153 per user. Twitter trades at $140 per user, and Facebook is at $123. Even at its latest $2 billion valuation, Snapchat trades at $50 per user. (And Snapchat reportedly turned down a $3 billion offer from Facebook last year.)

jdubya 12 years ago |

It is fairly obvious to me why FB believes WhatsApp is worth this extraordinary sum.

The application is inherently social. Obviously, it is a texting/sms/chat whatever you want to call it, application.

a) I read somewhere that they (WhatsApp) add 1,000,000 users a month. b) They have group chat. c) They have grown by 200% YoY iirc d) Their execution on the engineering side has been great e) The ubiquity of the application and the execution of their marketing efforts, no manner how small, have worked tremendously and they know how to replicate that effect.

If those five things are not the impetus for establishing a serious competitor to FB I do not know what is. 19bln to fend off what could become a serious competitor is a pretty sound strategic maneuver. Especially since FB revenue per user of the platform is around $4.00 - $6.00. Add 400,000,000 more users to the platform and you bolster the power of the FB brand, get more ads in front of 400mln users and expand your reach into unpenetrated markets that do not have internet access reliable enough to use facebook. App or otherwise this is a great step for the WhatsApp team. They sure didn't get it for a discount but the potential consequences of letting WhatsApp keep getting users and not addressing that directly would have been rather risky.

There is my armchair analysis.

limejuice 12 years ago |

From the article:

"WhatsApp may be "cheaper" than most rivals: Facebook paid just $30 per Instagram user at the time (the service had 33 million users when Facebook bought it, compared to 150 million today). Facebook is spending $42 per WhatsApp user. But given WhatsApp's enormous user base, its purchase price might be a bargain compared some of its competitors."

"LinkedIn's (LNKD) share price values that professional social network at $153 per user. Twitter trades at $140 per user, and Facebook is at $123. Even at its latest $2 billion valuation, Snapchat trades at $50 per user. (And Snapchat reportedly turned down a $3 billion offer from Facebook last year.)"

This reminds me of the dot.com bubble era where prices were justified by comparing to other over inflated stocks.

I'm surprised WhatsApp didn't go IPO. With the relative lack of new tech IPOs, I could have seen WhatsApp IPO at a $50 BLN or maybe even $100 BLN valuation, after analysts hyped it up using the same analysis as above. A case can be made that WhatsApp would have kept growing much faster than Facebook and eclipsed Facebook in a few years time.

Facebook FB 69.63 +1.57 +2.3% closed positive today after opening lower. ($64.50 in afterhours trading)