Facebook Inc (FB)’s WhatsApp Purchase: Justifying The $19 Billion Deal

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Facebook Inc (FB)’s WhatsApp Purchase: Justifying The $19 Billion Deal

Facebook Inc (NASDAQ:FB) paid a staggering $19 billion to buy WhatsApp, a company that generated only about $20 million in revenues last year. Many on Wall Street raised eyebrows, and called it a crazy move. No doubt Facebook paid a huge premium for a start-up in a fiercely competitive Internet messaging market.

Let’s look at the deal from another perspective. Verizon Communications Inc. (NYSE:VZ) paid about $130 billion to acquire the remaining 45% stake in Verizon Wireless from Vodafone Group Plc (NASDAQ:VOD) (LON:VOD). Investors loved it. But Verizon paid $2,984 for each of its 97 million monthly contract connections. The New York-based telecom operator made $669 from each of these connections, plus another $168 per subscriber from other sources. By that measure, the telecom company paid 3.5 times revenue per subscriber. On the other hand, Facebook Inc (NASDAQ:FB) paid $42 per WhatsApp user. Assuming WhatsApp can generate 50 cents, at best, per user in 2014, the social networking giant paid 84 times WhatsApp’s revenue per user.

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