Money and Finance
I first learned about WhatsApp a few months ago when a friend coming to Chicago from overseas asked me if I used the program so that we might avoid expensive international text messaging fees while coordinating our plans.
Now, I'm generally a late adopter of technology and wasn't surprised that I hadn't heard about WhatsApp before, but I never expected that I was overlooking a $19 billion enterprise -- the price Facebook is paying to acquire the company.
The initial market reaction to the deal seemed to be one of shock -- Facebook paid how much for a four-year old messaging service? But as the days have passed, the market seems to be rationalizing the deal as reasonable.
Indeed, I've read numerous reports about how the $19 billion Facebook paid actually a pretty good deal relative to other social media transactions...on a price-per-user basis.
When reading these reports, I immediately recalled the valuation metrics used during the Internet boom of the late 90s -- i.e. the "price-per-eyeball" and "price-per-click" metrics that were also taken seriously by analysts at the time. And we all know how that ended.
Whenever investors valuing companies on things other than assets, earnings, and cash flows it's time to be skeptical.
Maybe WhatsApp is a much more valuable asset than I think -- Mark Zuckerberg knows much more about social media than I do, after all -- but I don't believe the price-per-user metric tells us anything about the asset's intrinsic value.
If anything, I'm more concerned that investment community hasn't learned the lessons of the dotcom boom and bust and is taking silly metrics seriously again.
Stay patient, stay focused.
Best,
Todd
- Aswath Damodaran's Twitter Valuation
Having learned from the Facebook fiasco, I expect the bankers and the company to make the Twitter IPO a smoother offering. That process will of course start with the road show, where they will package the company like a shiny new present, and unwrap...
- Facebook Face Plant: Time To Friend The Company? – By Aswath Damodaran
As Professor Damodaran mentions in the article, he has a limit order out for shares at $18. If you think his valuation is about correct, the heightened volatility in the stock might make it an attractive candidate to sell some cash-secured put options...
- John Hussman On Facebook And Network Effects
I thought this section from John Hussman’s Weekly Market Commentwas worth breaking out separately, as it is an interesting take on the competitive advantages that come with network effects:“I really don't mean to pick on Facebook. It's a neat...
- Wcam: The Bubble Network: Deflating The Social Media Frenzy
In the Facebook movie, The Social Network, one of the original investors asks the question, “A million dollars isn’t cool, you know what’s cool? … A billion dollars.” Now, less than a decade after inception, Facebook is looking very cool indeed...
- Paying Up For Quality Stocks
Price is what you pay, value is what you get. - Warren BuffettA few years back, my wife and I were shopping around for a leather couch to put in our new home. As we walked around the showroom of a furniture store and had a look at some of the price tags...
Money and Finance
Has It Come to This Again?
I first learned about WhatsApp a few months ago when a friend coming to Chicago from overseas asked me if I used the program so that we might avoid expensive international text messaging fees while coordinating our plans.
Now, I'm generally a late adopter of technology and wasn't surprised that I hadn't heard about WhatsApp before, but I never expected that I was overlooking a $19 billion enterprise -- the price Facebook is paying to acquire the company.
The initial market reaction to the deal seemed to be one of shock -- Facebook paid how much for a four-year old messaging service? But as the days have passed, the market seems to be rationalizing the deal as reasonable.
Indeed, I've read numerous reports about how the $19 billion Facebook paid actually a pretty good deal relative to other social media transactions...on a price-per-user basis.
When reading these reports, I immediately recalled the valuation metrics used during the Internet boom of the late 90s -- i.e. the "price-per-eyeball" and "price-per-click" metrics that were also taken seriously by analysts at the time. And we all know how that ended.
Whenever investors valuing companies on things other than assets, earnings, and cash flows it's time to be skeptical.
Maybe WhatsApp is a much more valuable asset than I think -- Mark Zuckerberg knows much more about social media than I do, after all -- but I don't believe the price-per-user metric tells us anything about the asset's intrinsic value.
If anything, I'm more concerned that investment community hasn't learned the lessons of the dotcom boom and bust and is taking silly metrics seriously again.
Stay patient, stay focused.
Best,
Todd
- Aswath Damodaran's Twitter Valuation
Having learned from the Facebook fiasco, I expect the bankers and the company to make the Twitter IPO a smoother offering. That process will of course start with the road show, where they will package the company like a shiny new present, and unwrap...
- Facebook Face Plant: Time To Friend The Company? – By Aswath Damodaran
As Professor Damodaran mentions in the article, he has a limit order out for shares at $18. If you think his valuation is about correct, the heightened volatility in the stock might make it an attractive candidate to sell some cash-secured put options...
- John Hussman On Facebook And Network Effects
I thought this section from John Hussman’s Weekly Market Commentwas worth breaking out separately, as it is an interesting take on the competitive advantages that come with network effects:“I really don't mean to pick on Facebook. It's a neat...
- Wcam: The Bubble Network: Deflating The Social Media Frenzy
In the Facebook movie, The Social Network, one of the original investors asks the question, “A million dollars isn’t cool, you know what’s cool? … A billion dollars.” Now, less than a decade after inception, Facebook is looking very cool indeed...
- Paying Up For Quality Stocks
Price is what you pay, value is what you get. - Warren BuffettA few years back, my wife and I were shopping around for a leather couch to put in our new home. As we walked around the showroom of a furniture store and had a look at some of the price tags...