The valuation raises as many questions, as the Whatsapp deal did and relates to the difference between price and value. To justify a 10 billion valuation on a c

The valuation raises as many questions, as the Whatsapp deal did and relates to the difference between price and value. To justify a 10 billion valuation on a company that makes no revenue makes nonsense, especially when looking at the fundamentals (earnings/cash flows, growth and risk). The simplistic attempt at making sense of the price is to look at the correlation between the market's assessment of corporate values and each of the measures and you will see that: 1) Number of users is the dominant driver. The key variable in explaining differences in value across these companies is the number of users. The pricing game is not about what you or I think makes sense, but what traders care about. 2) User engagement matters: The value per user increases with user engagement. Put different, social media companies that have users who stay on their sites longer is worth more than companies where users don't spend as much time. While making comparisons across companies is difficult, since each company often has its own "measure" of engagement, there is evidence that markets care about this statistic. 3) Making money is a secondary concern (at least for the moment): Markets (and investors) are not completely off kilter. There is a correlation between how much a company generates in revenues and its value, and even one between how much money it makes (EBITDA, net income) and value. However, they are less related to value than the number of users. Snapchat is said to have 100milion Monthly active users- Whatsapp-hit 600million monthly active users recently, but only had about 300million users at the time of the Facebook transaction.