In next series of giving detailed insight about the gaps of FB-WhatsApp deal which in one or another way is going to hurt FB investor dearly and WhatsApp investors heavily. I was surprised to see deal news splashed all over internet. Somebody termed it Facebook move to protect its own turf and I was among those whereas some termed it as expensive one. It also started new discussion war among Analyst about the potential valuation of existing messaging Apps by keeping WhatsApp deal as threshold. In my point of view, both WhatsApp and FB investor is going to lose.
The purpose of FB was to acquire mobile centric user with highest probability of repeat users. Even though both the organizations are claiming that they won’t be supporting Ad filled revenue opportunities but do readers knows that
In just released Q4, 2013, Facebook generated $2.59Bn revenue and Ad revenue was $2.34 that translates in 90.34% revenue coming from Advertisement and mere $241 million revenue coming from other sources.
At the deal announcement time, Facebook promised WhatsApp $4 bn Cash, $12 Bn in Stocks and $ 3 Bn in restricted stock option. This will dilute FB number of total shares by 8.66%. At the same time, FB is going to offer 222 million shares to WhatsApp owners. It is going to put pressure on FB to sustain the same growth rate of 50% and 30% in revenue and net profit respectively.
It is also interesting that the FB Earning per share ratio of 111.3 at the time of deal which indicates the inflated valuation on the back of exponential growth expectation due to new love of ad attached revenue. Single $ fall in FB share price is going to lower the deal price by $222 million. Currently, FB share prices at and around its lifetime high and pundits are expecting higher share price moving forward. One must be careful about uneven behavior of Internet attached business.
- Do anyone remember once the darling of Internet MySpace.
- What happened to AOL
- What happened to Orkut
- What happened to Microsoft multi Billion $ acquisition of Skype
- What happened to Cisco multi Billion $ acquisition of WebEx
One misstep or even simple Application offering may act as havoc for both the company investor. I am expecting that Facebook cleverly attached deal through provisioning and infact invested only $4 Billion in cash and fair value of Facebook share even at flashy growth is not more than $25. It would translate the whole deal around $9 Bn plus. Its my personal assessment and opinion and would recommend investors to be in or out of the Facebook equity given their own assessment. I am expecting huge write-off by Facebook in next 2 years.
