Todd Harrison: WhatsApp? Timing, That's WhatsApp!
The biggest Internet deal since Time Warner-AOL.
The suspense is terrible -- I hope it'll last!
-Gene Wilder as Willy Wonka in Willy Wonka & The Chocolate Factory
What do you get when you combine a manically driven multibillionaire CEO with a mobile messaging platform that has 450 million users and a growth path to (pinky to mouth) 1 billion users worldwide in the next few years?
Answer: A $19 billion acquisition -- the single biggest Internet deal since Time Warner's (NYSE:TWX) $124 billion merger with AOL (NYSE:AOL) in 2001.
But there is so much more to this story than a one-off parallel.
For starters, let's look at the numbers. WhatsApp has 55 employees, which equates to roughly $344 million per employee, and $28-$35/user, depending on the math.
In what would be the largest acquisition ever of a venture capital-backed start-up, WhatsApp is now valued higher than Southwest Airlines (NYSE:LUV), Tyson Foods (NYSE:TSN), Ross Stores (NASDAQ:ROST), Alliance Data (NYSE:ADS), Motorola Solutions (NYSE:MSI) or Starwood Hotels (NYSE:HOT) (hat tip: ZeroHedge).
Value, quite obviously, is in the eye of the beholder, and Mark Zuckerberg likes what he sees -- in fact, he likes it a lot. Benedict Evans wrote a great piece on value perception last night, one that helps illuminate some of the thought processes involved. From the buyer's perspective, the two primary takeaways are this:
1. The determination of Facebook (NASDAQ:FB) to be the "next" Facebook by acquiring disruptive technologies rather than attempting to compete with them.
2. The importance of owning the mobile social graph, which is quickly dwarfing the desktop Web.
This would help explain why Facebook paid 1% of its market value for Instagram yet close to 10% of its market value for WhatsApp. Mr. Evens also notes that at $35/usher, Facebook is paying close to what Google (NASDAQ:GOOG) paid for YouTube in 2006 on a per-user basis.
The number crunchers are everywhere, but truth be told, the success of this acquisition remains to be seen; the devil, as they say, will reside in the details of execution and monetization.
For my part, I view this mega-deal through three concurrent lenses:
The deal itself, and whether the numbers are justified; the timing of the deal, and what that means through a big-picture perspective (think Time Warner-AOL); and perhaps the most enjoyable lens of all -- the story of Brian Acton, who four years ago was unemployed and looking for a job.
Check out his Twitter posts and time stamps, courtesy of TechCrunch.
Congrats Brian; you took your shot, and now you've got 19 billion reasons to smile.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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