Facebook Buys WhatsApp: The Timing is Key, notes Harmel Rayat

Facebook is no stranger to sticker shock… or backlash for that matter. News that it was buying little known messaging startup – WhatsApp – for $19 billion was quickly panned as a desperate and expensive move. “This is crazy money,” noted Rob Enderle, principle analyst at Enderle Group, as quoted by CNBC. “I think they massively overpaid for this. They’ve done it because they are desperate.” “Google mocks Facebook’s $19 billion WhatsApp purchase,” read the latest Tech Times headline. “Facebook paid too much for WhatsApp,” noted MarketWatch. “But there’s strategic value here, though,” notes investor Harmel Rayat. “Not only does the deal give Facebook access to another 450 million users, it positions the company for growth in an expanding social and mobile space.” “In many ways, WhatsApp users are just the kind of customers Facebook is looking for. They are extremely active, sending more than 600 million photos a day -- more photos than Facebook users upload,” according to CNN. “A whopping 70% of WhatsApp users are active every day. By way of comparison, 62% of Facebook users are active daily. People around the world send 19 billion WhatsApp messages per day, including 200 million voice messages and 100 million videos.” Again, Facebook is no stranger to sticker shock… or backlash. When it bought Instagram for $1 billion in 2012, “everyone hates it already,” blared The Guardian. And rightfully so… At the time, Instagram had no profits or revenue. But as smart investors would quickly learn, Instagram would become a wild success. Remember Google’s $1.6 billion gamble on YouTube? When Google moved to buy YouTube, even Eric Schmidt noted he was willing to pay quite a premium – a “big one.” "This is a company with very little revenue," noted Schmidt, as quoted by CNET. "(YouTube was) growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer--because of who Google was--paying much more than they were worth...We ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube." The press would report: “Google overpaid YouTube by $1.5 billion… Was it worth it?” “Yahoo exec rips Google for overpaying for YouTube.” “Google Overpaid for YouTube by a Billion Bucks…” As we now know, “Google’s purchase was brilliant,” notes Harmel Rayat. “The deal instantly turned Google into a market giant in Internet video, allowing it to profit from a rapidly growing online video ad space.” Within three years, YouTube jumped from 12 million unique visitors in 2006 to more than 100 million users in the United States alone. Nowadays, YouTube is visited a billion times a month. And 2013 revenue from YouTube came in around $3.7 billion, according to Forbes. “There’s a perception that companies are overvaluing investments,” notes Harmel Rayat. “To be successful, you must understand that it’s not always about ‘price’ but ‘timing.’ There have been similar real estate deals throughout history, where it would have appeared an investor paid far too much.” “In hindsight, though, the buys were bargains.” • In 1626, Peter Minuit is said to have bought the island of Manhattan for goods valued at 60 Dutch guilders (estimated to be worth $24 at the time). Some say he overpaid for a rocky island. Perhaps he did. But today, Manhattan is worth a lot more than $24, as a densely populated borough of 1.6 million people. • The argument could be made that KSL Partners paid too much ($115 million) for the Omni Scottsdale Resort & Spa at Montelucia from the five banks that foreclosed on the property two years earlier. But as we all know, the deal worked quite well when KSL sold the property for a 21% premium at $138.75 million. • The argument can be made that Dongdu International (DDI) may have paid too much for the Detroit Free Press Building and the David Stott Building shortly after Detroit’s July 18, 2013 bankruptcy filing, as the city became a miserable ghost town. But with plans to turn the buildings into a $50 million retail and residential complex, the purchase may be a great deal. The London Canary Wharf and even the Empire State Building were expensive propositions originally. But they both turned into big moneymakers for smart, patient investors with good timing. Remember, it’s not always about the price of an investment. Timing is always key, notes Harmel Rayat.

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Facebook Buys WhatsApp: The Timing is Key, notes Harmel Rayat

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