Dillian: Facebook/WhatsApp Deal Raises Red Flag on Internet Names

When the news about Facebook (FB) acquiring WhatsApp broke Wednesday, my Twitter (TWTR) feed was full of stuff like "what is a WhatsApp?" and other questions of that nature. Admittedly, I'm old (40 next month) and I think everyone I follow is old, but it's amazing to me that while 450 million people use this application, none of them are people I know.

Remember that everyone said that Facebook CEO Mark Zuckerberg was crazy when he did a handshake deal to buy Instagram for $1 billion (never mind the corporate governance implications of that deal); I said at the time that he stole it. It turned out to be true. I don't know what kind of valuation you would put on Instagram on a stand-alone basis today, but arguably, it's several billion. Zuckerberg, clearly, is not a typical Wall Street guy who is tight with a buck. He overpays for things, but they turn out to be winners in the long run. Maybe not this time.

Contrary to popular belief, they usually do ring a bell at the top. By any metric, this deal looks ridiculous: $19 billion and 55 employees works out to $375 million per employee and $50 per customer (no ads, teeny-tiny fees). But you have to be careful. It is easy to scoff at stuff like this, but the young folks and tech nerds shake their heads and say things like "You just don't get it." And you know what? Those guys have been consistently right, going back to 2008, when Facebook had a $20 billion private valuation, and people were calling it a bubble back then.

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