Valuation is thought to be a science by many. Just because a number is put out and there are detailed calculations and forecasts and projections of scenarios, it is assumed that valuation is rational, objective, data driven and sensible. When was Valuation ever just a number that one arrived at?
And.. the WhatsApp deal with Facebook.. again demonstrates how little valuation is about science and how much more it is about belief.. of the future and what one wants to make of the future. While only Mark Zuckerberg can give us his true reason for this acquisition.. typically any deal is driven by a couple of key deal issues.
In one sense Mark has given away what really, really excites him.. billion users. He has probably got hooked to this number with Facebook users reaching this target and now wants to get another billion users.. and where else can he get this, other than from WhatsApp, or other similar such consolidator of people? And from across the world? So not only will he get many more users .. these will be many more, from multiple countries, nationalities, languages .. etc. To influence or be relevant to and used by such diverse sets of people.. must be mind blowing.. if that is what is excites one. Not that I have been following too much about Mark Zuckerberg, but I do remember reading an early interview of his, where he was focussed on getting more and more people on board as users. The view, I think, was that monetization would be focussed on later and would follow. Today, China, India and Women and Facebook are referred to as 1 billion populations. WhatsApp is an emerging 1 billion frontier to be conquered.
Another thing about a big number is, its materiality to the person concerned. I assume that for Mark Zuckerberg the billions, in dollars, is not as material as they are to most of the world. Or is this a naïve assumption? And much of the payment is in Stock. This kind of value of Facebook was not anticipated when it was started ten years ago and so it is perhaps easier to give away? Just a random thought “to trigger thinking.”
In any deal there are two sides, the buyer and seller.. and the negotiation of the deal price and deal terms. Are the founders of WhatsApp great negotiators or What? They have demonstrated some talent which is not, as yet, fully visible to many of us. In addition to money, this deal has also given out a Board Seat in Facebook, per some media reports. So maybe the deal has some elements of pricey hiring! In this age of H2H (human to human) interaction, people are the key. And this includes i) Some select persons like the WhatsApp founders and ii) Groups of persons like the WhatsApp rapidly growing User Base.
And there could be many more such points to be thought up, thought through and debated. Why USD 19 billion, why not 5, or 10 or whatever other number, especially when you compare this with other recent deals such as the Viber acquisition by the Japanese Internet company Rakuten for 900 million USD?
And that is the real question? Why this number of 19 billion dollars?
So why did Mark Zuckerberg value the deal as Worth It to him, at USD 19 billion? Only he can tell us. And Time.