The conspiratorially inclined explanations in me thinks that there might be another reason for this extreme valuation. Considering that just last year Google offered 1B for this service, and was denied because at that time Sequoia had invested at a 1.5B valuation, and Google had been unwilling to up their offer. It would appear that a 3B price or a 2x valuation would be sufficient. But clearly it was not. And I don't think it was because of competing offers from Yahoo! or others. Here's what I think might also be happening. I think some major surveillance outfit (NSA / Five Fingers / etc.) saw that by circumventing the telecom infrastructure and allowing for massive texting information to be 'funneled' through off-site servers, to support the WhatsApp service model, that they could harvest this communication without having to involved all the individual telecoms world wide. Instead they get a direct feed into the worlds texting data by buying the 'funnel' itself. And I think that they were willing to pay any price for this. I think that once Whatsapp figured this out, and came to terms with the fact that their technology was going to be used to circumvent traditional telecom limitations, they just went after as much as they could. And that turned out the be close to 19B dollars. The irony of course is that the one founder refers to the evils of soviet totalitarianism as part of his driving force. So it may be that when every thing is said and done, he provided a surveillance tool to an emerging regime of techno-fascism, the likes of which his previous hated regime could never imagine.<p>Again, this is just a shot in the dark. A wild stab at a rationale. But that's what will happen with an insane price valuation like $19B.
> If you are an investor, stop trying to explain price movements on social media companies, using traditional metrics – revenues, operating margins and risk.<p>This just seems goofy to me. If you're an investor, isn't that <i>exactly</i> what you're supposed to base it on? After all, you're investing dollars into the company (presumably). It seems a dangerous game of chicken, because people don't put their money into a stock just to watch them get more users, they do it to eventually get more money back. To me, that's done in 2 ways: if the company actually makes enough money and gives a dividend, or secondly by selling to a 'greater sucker'. If you ignore "traditional metrics", aren't you betting on the 2nd one?<p>And even if we <i>do</i> that, FB can really "only" grow their user base by ~5.5 times. Beyond that, you <i>have</i> to look at things like revenues, operating margins and risk, don't you? I understand that when FB was at 10 million people they were growing extremely quickly, so their valuation was probably crazy high, but how much growth can FB really have anymore? Now that they're public, isn't that supposed to be the time when revenues, operating margins and risk actually kick in?<p>For the record, this is exactly why I don't invest in social media stocks--I don't understand it. It might make sense to someone else, but not to me (yet, anyways).
> "Why don't we sell ads"<p>There's nothing preventing them from data-mining messages and stripping out identifiable information (like what Google does w/ Gmail) to better target ads in other services.
Although he tries not to, the author seems to make the argument for fundamental analysis here. While he acknowledges that current drivers for the prices of social media companies are based on users and their level of engagement, he essentially concludes by saying that this is a fad.<p>Basically, some companies are "in fashion" the same way bellbottoms or baggy pants were, and the only way to explain why is to say, "because it's cool... for now."