Analysis of the unreasonable reasons behind facebook’s acquisition of Whatsapp:
Challenging principles of equity valuation and all possible theories of Corporate Finance, recently Facebook announced acquisition of WhatsApp at a massive valuation of $16 bn….no it’s not a typo…it is actually billion and not million. Now add $3 bn worth shares of Facebook to this equation as these shares are also being issued as restrictive share units for WhatsApp employees, the total value hits the rooftop at $19 bn.
Let’s try to figure out what led Facebook price WhatsApp so high.
Let’s begin with understanding both companies involved here; Facebook is a social media company offering a platform for social networking, while Whatsapp on the other hand is an instant messaging service, allowing millions of users across the globe to stay connected with their family and friends. Facebook has 1.23bn active user per month whereas Whatsapp has 450 mn active users per month. Facebook’s daily active users are 63% in comparison Whatsapp’s daily active users are 70%. Market cap for Facebook – $174 bn and for Whatsapp $16 to 19 bn, if we talk about revenue, for Facebook it is $7870 mn and for Whatsapp it is estimated to be around $20 mn.
These stats definitely place Facebook as a very strong buyer as compared to the target; let’s go through some facts to figure out the rationale behind this acquisition, analyzing the levels of activity on Whatsapp can probably give a clear picture:
600 mn Whatsapp users send 600 mn photos every day, which is far more than the pictures uploaded on Facebook on a daily basis. Whatsapp users send 19 bn messages, exchange 200 mn voice messages and circulate 100 mn videos on a daily basis.