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Why Facebook Purchased Whatsapp

  • Written by Syndicated Publisher No Comments Comments
    February 25, 2014

    No, Facebook is not stupid for paying $19B for Whatsapp! If they didn’t do it, Google would have!

    No, contrary to popular pro-Facebook belief, Whatsapp is not a synergistic buy. Remember, Facebook already has a near identical application (Facebook Messenger) already used by probably hundreds of millions.

    So, why did Facebook spend this money (stock)? It’s quite simple and rather obvious, but my competitors in the sell side are remiss in not discussing it… Facebook is DYING as a GROWTH company! My analysis of Facebook’s Q1-2013  results read much differently from all of sell side Wall Street’s –  The Truth About Facebook That No Media Outlet Or Analyst Has Bothered To Notice:

    In my previous warnings of Facebook euphoria, I brought up the topic of growth many times, particularly active user growth. Reference The World’s First Phenomenally Forensic Facebook Analysis – This Is What You Need Before You Invest, Pt 1, while remaining cognizant that this was written exactly 1 year ago:

    Thus, it is highly unlikely one can legitimately factor in the type of growth needed to justify the current Goldman $50B valuation – particularly when you consider that Facebook’s growth is already slowing!

    Well, let’s see if I had a valid point now that we have clear and convincing historical evidence from which to base our analysis… (click any of these graphics to enlarge to print quality size)c

    thumb image008 copy

    Uh huh! Facebook is MOVING BACKWARDS! IT’S LOSING USERS! LOOK OUT BELOW!!!

    thumb image014 copy

    At this point, I can’t help myself. I MUST point out the literal rippoff that Goldman Sachs pushed as a once in a life time investment a year and a half ago. As excerpted from Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week! while remaining cognizant that this was written exactly 1 year ago…

    Just a day or two later I penned Facebook Is Now Relying on Developing Markets For Growth, Is It Working? Let’s Delve Into The Numbers…

    Facebook is a farce even with the froth taken off of the IPO price. Why? As gleaned fromInternet World Stats

     image004 copyimage012image013

    These stats are from the 2011-2012 YEAR! Growth has likely slowed more since then! Here’s a tidbit for those who don’t subscribe that clearly illustrates… When it sounds too good to be true, it’s probably not true!

    FB IPO Analysis  Valuation Note Page 01FB IPO Analysis  Valuation Note Page 02FB IPO Analysis  Valuation Note Page 03FB IPO Analysis  Valuation Note Page 04

     

    In More Doubts About “Liking” Facebook, I referenced the following infographic from Finance Degree Center:

    facebook

    As luck would have it, Whatsapp is the fastest growing company (in terms of active users) in the history of technology. Whatsapp also is the messaging market leader in nearly all major developing nations.

    So, what Facebook is doing is buying user growth. It’s doing so because…

    • Not only can it not generate said user growth organically anymore, but
    • It is actually losing subscribers

    How does Facebook remedy its growth problems? Well, it should be evident at this point, it’s buying the growth! Of course, this begs the question, does a growth company really have to purchase growth? This is a rhetoric question, which leads to this rather painful discovery (posed as a question): If Facebook is no longer a growth company, why doesn’t its valuation reflect that of a rollup instead of a growth company?

    If Mr. or Mrs. Market Participant broaches this question, look out belowwwwwwwwww……

    Dated Facebook analysis is available to download for all paying subscribers (FB Q4-2012 Analysis & Valuation Note – update with per share valuation). I’m available to discuss this with professional and institutional subscribers via phone or Google+. Click here to subscribe or upgrade.

    Images: Flickr (licence/attribution)

    About The Author

    Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts to uncover truths, seldom if, ever published in the mainstream media or Wall Street analysts reports. Since the inception of his BoomBustBlog, he has established an outstanding track record

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