Facebook, WhatsApp and the new Internet bubble

I was reading the great news about the 19 billion USD which Facebook paid for WhatsApp.

I want to underline, that 1 year ago, Google wanted to buy it for… 1 billion USD: http://venturebeat.com/2013/04/08/as-google-acquisition-rumors-grow-is-whatsapp-really-worth-a-billion-dollars/

And in December 2013, http://blogs.wsj.com/digits/2013/12/19/whatsapp-hits-400-million-users-wants-to-stay-independent/

WhatsApp has “no plans to sell, IPO, exit, [get new] funding,” Koum said.

“Despite the fact that we’re able to monetize today, we’re not focused on monetization,” Koum said. “We view monetization as five, 10 years down the road. We’re trying to build a sustainable company that’s here for the next 100 years.”

Koum said WhatsApp has attracted new users without spending on marketing.

 

I found some articles which say something like:

The huge price tag attached to Facebook’s purchase of WhatsApp — one of the largest web deals in history — actually makes more sense than you might think at first glance.

 

What?

No company is so much worth! And especially not an instant messaging company.

Some facts:(read here the details).

– the company is 5 years old

– it has 450 million users.

– It has 400 Million active monthly users

 

– July 2013 it had 200 million active monthly users

– 100 M from them joined in the last 4 months

– it has 50 employees

This means:

– $16 billion  / 450 Mil Users = 35.5  $/User

Actually, the more accurate calculation would be to take the active users only, and the final amount of money ($19 bil) but, it doesn’t matter.

This amount of $/user is… huge !

No other service has so much per user and I doubt that any user of such a service is so much worth.

BTW, I am proud to say that I don’t have a WhatsApp account 🙂

(No offense to the users 🙂 )

The real value of a company is computed in revenue/employee. But wait, what was the revenue of WhatsApp ?

Not published, or I haven’t seen it. And even if it would have been in millions, it must have been pocket change in comparison to the value of the deal.

 

So what?

This has happened in the past.

In the Internet Bubble called “Dot.com Bubble“. What happened back then?

People invested real $$$ in unreal businesses. All virtual… no real value.

Things that have an virtual value mean that anyone can live very well without them. It is not always easy to live without them, of course, but it is possible.

If you read here http://en.wikipedia.org/wiki/Dot-com_bubble

A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics such as P/E ratio in favor of confidence in technological advancements.

Sounds familiar isn’t it?

 

But there is more:

The collapse of the bubble took place during 1999–2001. Some companies, such as Pets.com, failed completely. Others lost a large portion of their market capitalization but remained stable and profitable, e.g., Cisco, whose stock declined by 86%. Some later recovered and surpassed their dot-com-bubble peaks, e.g., Amazon.com, whose stock went from 107 to 7 dollars per share, but a decade later exceeded 400.

The Facebook shares lost 8% when the deal was announced. But now, unfortunately, they are coming back. Unfortunately.

 

Now what?

The IT industry is in a bubble. This deal just makes the bubble bigger, closer to the explosion.

Hm… I must review those funds in the IT that I have… as long as I still have them.

 


© Copyright 2014 Sorin Mustaca, All rights Reserved. Written For: Sorin Mustaca on Cybersecurity

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About the Author

Sorin Mustaca

Sorin Mustaca, (ISC)2 CSSLP, CompTIA Security+ and Project+, is working since year 2000 in the IT Security industry and worked between 2003-2014 for Avira as Product Manager for the known products used by over 100 million users world-wide. Today he is an independent IT Security Consultant focusing on Cybersecurity, secure software development and security for IoT and Automotive. He is also running his personal blog Sorin Mustaca on Cybersecurity and is the author of the free eBook Improve your security .

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