WhatsApp is not worth $19 billion. That was a defense acquisition, not an RoI based acquisition. Facebook was protecting themselves from losing $19 billion or more of business to WhatsApp or WhatsApp in the hands of a competitor (like google).

A company is worth exactly what someone is willing to pay for it, nothing less, nothing more. That's the best evaluation that exists.

The motivation for thart valuation is still relevant though.

I think this might be a bit of a single cause fallacy just like the other poster. Only Facebook knows why they payed what they did, but it was certainly more complex than just preventing Google from buying them.

The aggregate benefit of not having WhatsApp in a competitor's hand + the benefits to their core business of owning it + the lifetime profitability of WhatsApp + some other factors I'm probably forgetting <= a value of 19B in mostly Facebook stock.

> some other factors I'm probably forgetting

The verified phone numbers of 800 million people [1] and the ability to act as a gateway drug to other Facebook services [2]?

[1] https://en.wikipedia.org/wiki/WhatsApp

[2] https://en.wikipedia.org/wiki/WhatsApp#Acquisition_by_Facebo...

The problem with having a monetization strategy is then people can see how much money you make. If you aren't making any money and not even trying to make money, the cash investors and buyers throw at you is Monopoly money printed on valuations and total active users.

Most startups would drop in valuation significantly if they made even one penny.

>Most startups would drop in valuation significantly if they made even one penny.

This kind of stuff sounds EXACTLY like what people were saying during the first dot-com bubble. Did you mean that ironically perhaps?

With this and the startup generator posted earlier, I am convinced I am re-living 1998, only at the age of 39 rather than 22...

Not ironic, no. It's just the truth. Do you think WhatsApp or Instagram would be worth billions if they had to make money? With the absolute minuscule amount of profit they might make, their valuation would be worth maybe hundreds of thousands. Not billions.

The reason they're valued so highly isn't because of how much money they would make, but how much value they would bring to an already profitable company. Those valuations aren't based on the idea of profits, but on the idea of being bought out by a bigger player. If they started making money on their own, that value would drop massively.

I specifically went with 10+ just because beyond 10x I feel that it becomes increasingly difficult to be certain. I too believe it's greater than 10, but how much so ... I have no idea.

YouTube has revenue about ~20% less than Netflix, and is supposedly profitable according to articles from late 2013. Netflix is worth $33 billion, and has something like 57 million paying subscribers.

I believe the paying subscriber base, ie a superior business, gives Netflix a valuation edge, along with higher sales. Netflix is also rapidly building large international subscriber base that will be incredibly valuable over time, to go with their custom content (DareDevil, House of Cards, etc).

10x for YouTube would be $16.5 billion. YouTube isn't worth dramatically more than that range, the ceiling is clearly Netflix. So $15 - $25 billion is fair imo as a broad range.

What makes the barrier to entry higher for video than messaging? I would expect the opposite, by a good margin. For messaging, you get strong network effects, and it's useless unless the people you want to contact are signed up for the service. For video, you can upload anywhere, send or post the link, and they can watch it. Obviously that isn't actually happening, so I'm curious what I've missed. Or is it just because YouTube is pretty good?

Yep. The niches carved out by vimeo and liveleak are interesting in their own right.

But I mostly wanted to say, youtube is pretty fucking great.

There are network effects among video, although not as strong. How do people find what they want to watch? Both the search feature and "related videos" are important here.

How much of that is due to Google helping them out though? Could Google have launched a competitor for say, $0.5BN? So long another big player didn't buy them up and do well, we could easily be laughing how they wanted 1.6 and Google only needed a third of that to win.

But I suppose it doesn't matter in the big scheme of things. Why take the risk of someone buying YT and maybe getting more traction? A billion dollars doesn't matter enough, long term.

Or look at Groupon, which hasn't really done better than Google's $6BN offer - that didn't work out spectacularly for Groupon. Imagine if Google used a few billion to get people using its deals site. They could spend millions a day subsidizing deals for a year or two just to build traction. Yet they still offered 6BN.

Google did have a competitor called Google Video which was failing horrendously.

One of the huge downsides of Google Video from a consumer side was that videos took 3 - 5 days to upload as they were proactively being checked for copyright infringement. Google probably never could have gotten away with the laissez faire attitude towards copyright infringement that a young startup like Youtube which is why it made sense for them to buy it, regardless of the price.