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Why it makes sense to pay $16 billion for What’s App


Facebook pays $16 billion for What’s App

I think this actually makes sense for FB even at this amazing price.  Most of it will be paid in FB funny money.  That is, it is paid in stock which they will just create out of thin air just like the US Federal Bank creates money. Maybe Ben Bernanke is advising Facebook.

I mocked the 3.2 billion dollar purchase of Nest, a company that makes thermostats and smoke detectors, because Google paid in real money.  This is money that could have been used to buy back their own stock or paid a dividend. I think that Facebook is proving that they actually have a brain even if they can’t design software that very well.  Maybe the team at What’s App can help them there.  One thing is for sure, the price of real estate is going up in the San Francisco Bay Area.

 

Living through the wrong bubble

Looking that these acquisition makes me feel that I lived through the wrong bubble. For instance  I was on the board of CMGI in the beginning of 2000 when it was worth more than $40 billion (and more than General Motors).  I sold all my stock in that company then.  Later after the bubble burst, CMGI’s stock like all internet stocks fell to the floor.  An investor at a shareholders meeting was screaming at Dave Wetherell, the CEO because the company had invested a lot of money (I don’t remember how much), in PCCW a company  based in Hong Kong and managed and largely owned by Richard Li, the son of one of the richest people in the world.  The CMGI shareholder claimed we lost most of this money because PCCW’s stock had also dropped.  But it did not drop as much as CMGI.  Why, because we (I was also on the board of PCCW), bought a real asset, the Hong Kong Telephone Company, with stock.  That asset retained its value.  So it turns out that CMGI actually made a lot of money on the deal because it was the equivalent of selling CMGI stock at a very high price, stock that was made out of thin air.

 

Buy Time Warner

If I was Facebook or Google, I would be selling as much stock as I could and buying assets like cable companies that have good cash flow. It may come in handy later.

4 thoughts on “Why it makes sense to pay $16 billion for What’s App

  1. Avram I couldn’t agree more. Most people miss this. When MV have not cap of $1B I advised board that they should buy accretive, good cash flow private companies with “funny money”. They claimed that shareholders would reject such stock” dilution”. Idiots! .

    Rgds, Steve

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  2. p.s. I could also tell you why Andreesens $75M B round in start-up Oculus was a highly sensible and strategic transaction. Clearly Oculus is a consumer-scale, console-style software play and “not” a display architrcture. Kudos to them. Likewise Innovega is a unique wearable computing platform that will enable massive sales of high-margin content

    Rgds, Steve

    Like

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