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Ask HN: How the hell is Whatsapp worth $18 billion?
$40 per user someone calculated to be.
My question is, how is it $40 when the app itself is free and doesn't get the $40 from the user?
How will Facebook monetize it?
The moment they track users or show ads won't people leave and a new Whatsapp emerges?
Please help me understand how MAU without pay from user's wallet works because porn sites have a lot of MAU and they are not getting bought out, and they are free and offer value to the users as well.
- a3voices 13y agoIt's worth that much because it has the growth potential to overtake Facebook. The value is in futures. In order to keep your lead in the market, you sometimes need to buy out the competition. I'm not an expert on it, but that's just how I understand it.
- gexla 13y agoFacebook mentioned the volume of messaging sent through the application is approaching that of the SMS volume of the entire world. So, it's like buying a huge (the largest by far) global telco which only allows texting. In some poor countries, that's all people really use a cell phone for anyways. Calls are too expensive, so you see far more people texting than talking. As big as thing thing is, it's possibly headed to 1 billion users. I'm assuming that's about as massive as anything which exists right now. It's one big platform among very few that are operating at that level. I just don't think there is any comparison. Money doesn't matter. You make big plays. If Zuckerberg were thinking small when he built Facebook, it would be a small e-commerce store selling T-shirts or something.
- checker659 13y agoThat's how much it's worth to Facebook. Not to you and I but to Facebook.
- smokestack 13y agoI think that's understood
- akg_67 13y agoYou may want to read this blog post from Prof. Damodaran. I thought it was one of the best valuation/ pricing article I read on Whatsapp acquisition. http://aswathdamodaran.blogspot.com/2014/02/facebook-buys-whatsapp-for-19-billion.html http://aswathdamodaran.blogspot.com/2014/02/facebook-buys-wh...
- badman_ting 13y agoI read a comment that said people run their entire businesses on it, and that in many places there is a 90% chance that someone you're talking to has WhatsApp on their phone. Sounds pretty valuable to me. It's a communication platform, what's more valuable than communication. You might say they don't have enough lock-in, that someone else could come along and take their business. True, but I don't think that changes the value of this space in general. People always say that startups focus too much on problems that young white males tend to have, well here's something that's as generally useful as you can get.
- jwheeler79 13y agoprice is what you pay, value is what you get. it cost 19b, doesn't mean it's worth 19b. intrinsic value is the amount of future cash flow the business will generate discounted to present value. projected earnings must be measured against the returns of the s&p 500 rate of return 6% per year adjusted for inflation. they would need to have profits in the range of 500M to 1B for that valuation compounding much higher than that. it is a totally bogus valuation based on new metrics a la zuckyberg
- nodata 13y agoNobody has answered the OP's question: why $18B? why not $18M or $523M?
- jmathai 13y agoIsn't the price somewhat arbitrary? WhatsApp's market value is based not on revenue but on what the highest bidder will give them. WhatsApp probably had an idea of what the big players (Apple, Google, Facebook) might offer and that becomes what their going rate is. I don't know if this is how the amount of an offer is determined but it sounds plausible to me.
- coralreef 13y agoWhatsapp does charge $1/year or something, so that times XXX million users = some baseline value.
- pratkar 13y agoMost acquisitions should be compared from a lenses of a peer company acquisition (Peer multiples in financial-speak). If you compare the acquisition of Whatsapp with Viber a few days back, you would know why Whatsapp was such a steal. Read more here: http://appiterate.com/whatsapp-vs-viber-who-got-a-better-deal/?utm_source=HN&utm_medium=Social&utm_campaign=Dis http://appiterate.com/whatsapp-vs-viber-who-got-a-better-dea...
- brudgers 13y agoThe deal is only worth $18 billion if FaceBook can sell additional shares into the market worth $14 billion dollars without lowering current share price. Since the announcement of the deal itself influenced share price, such an opportunity seems unlikely. It's supply and demand. WhatsApp is in the same boat. They cannot dump $14 billion worth of Facebook shares into the market without likewise influencing share price. Thus neither company values the deal at the headline grabbing number because the opportunity costs are low. Facebook doesn't have a lot of options to move that much equity and WhatsApp does not have a long list of potential buyers with $4 billion in cash plus the discounted value of Facebook equity.
- gopi 13y agoWhatsApp is not really free but supposedly cost $1/year from the second year. Yes they are doing free renewals for now and i am guessing it will not be long they begin to charge again. They have 400 million active users now and will be around billion users by next year. If they charge the usual $1/yr in the emerging markets and say $5/yr in the developed markets that will get them around $3 billion revenue. Also they have almost 90% gross margins as from what i read its a tight operation with just 50 people and 600 servers. So with a $2.7 billion EBITDA by 2016 the $19 billion dollar valuation is just 7x multiple and very reasonable. This is not even considering the strategic value of WhatsApp to Facebook!.
- copter 13y agoWhatsApp will never be a paid app since Facebook acquisition. Otherwise users will go for the free alternatives.
- phantom_oracle 13y agoHere is a couple of theories I have had about it: Firstly, Facebook doesn't need to monetize it. WhatsApp seems to be generating enough cash to run on its own. Instead, WhatsApp is a data-cow (I, phantom_oracle, officially coin the term data-cow on 21/2/2014 :P, which is the 21st century equivalent of a cash-cow). WhatsApps value proposition lies in the data it has access to. I've already read on pandodaily/wired/one of those tech blogs that explains that whatsapp can access your private data, as it is in their terms. So now think about it. WhatsApp is always on/connected, so user tracking and trend-creation becomes easier. People discuss a lot of things on it too, thus a lot of personally identifiable info exists (think, planning meals with your loved one, chatting to your kids, etc.). By combining these 2, FB can improve its targeted ads on the FB platform and Instagram. Link all three and they basically have the equivalent of a user-database that is the envy of the NSA (pictures, messaging, location, etc, etc.). If FB can improve its ad-revenue by even US 1 billion each year through this purchase, then the real ROI will be over 19/16/14 years (whatever the true amount they paid is). Chances are, it will increase by a lot more than 1 billion a year. There's just too much data they control. If you want to spot how they might monetize on their data, look at FB for jobs about natural-language processing (now or in the past). Also look at their ad pages to see if they boast about targeted ads.
- workhere-io 13y agoWe're in a tech bubble. I don't see any other explanation, because it's unlikely that WhatsApp itself will ever generate the amount it was bought for. Some years (months) from now the bubble will burst, and IT companies will be bought for a far more reasonable sum (a sum they'll have to justify to the buyer by having decent revenue. Sure WhatsApp has revenue, but nowhere near $18 billion).