
Ask HN: How the hell is Whatsapp worth $18 billion? - notastartup
$40 per user someone calculated to be.<p>My question is, how is it $40 when the app itself is free and doesn&#x27;t get the $40 from the user?<p>How will Facebook monetize it?<p>The moment they track users or show ads won&#x27;t people leave and a new Whatsapp emerges?<p>Please help me understand how MAU without pay from user&#x27;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.
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gexla
Facebook 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.

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akg_67
You 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-
wh...](http://aswathdamodaran.blogspot.com/2014/02/facebook-buys-whatsapp-
for-19-billion.html)

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gopi
WhatsApp 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!.

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copter
WhatsApp will never be a paid app since Facebook acquisition. Otherwise users
will go for the free alternatives.

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phantom_oracle
Here 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.

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brudgers
The 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.

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badman_ting
I 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.

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sjg007
Imagine sending money via What's App.

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almosnow
Oh god, never saw this one coming. This would be huge.

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tyrelb
Great idea. I wonder why Facebook isn't allowing sending money now...could be
a great platform...

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checker659
That's how much it's worth to Facebook. Not to you and I but to Facebook.

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smokestack
I think that's understood

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pratkar
Most 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-
dea...](http://appiterate.com/whatsapp-vs-viber-who-got-a-better-
deal/?utm_source=HN&utm_medium=Social&utm_campaign=Dis)

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workhere-io
We'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).

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jwheeler79
price 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

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nodata
Nobody has answered the OP's question: why $18B? why not $18M or $523M?

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jmathai
Isn'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.

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coralreef
Whatsapp does charge $1/year or something, so that times XXX million users =
some baseline value.

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a3voices
It'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.

