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Monday, February 24, 2014

WhatsApp or WhatTF - $fb


With this deal, the chatter has been endless. All the potential is inspiring. I remember another huge deal so 'inspiring' AOL-TimeWarner. That eventually ended fairly well, after they split again, I guess.

Messaging, engagement and the next Billion Users are a big deal. But that is not new. These things have always been a big deal. Except now, messaging is being whispered as the 'new' platform.

Influencers are suggesting its a new means of 'discovery', others are calling it the 'glue'.

My biggest WTF about all these 'what-ifs' on this deal: Facebook was/is all these things, and did not materialize as the 'glue' and yet to be used for true 'discovery'.

Fact is, a silo'd WhatsApp, as a pure messaging service will not be worth $19b based on current business model. For all of Facebook's attempts of being something more, its simply riding the wave of Ads in the News Feed. (They are also benefiting from the fact that desktop ad prices are not deteriorating as fast as mobile ads, via saturation and pricing, rise.  Hence the accelerated revenue growth.)

A WhatsApp, going against the founders values, will morph to look like WeChat or one of the other popular Asian social-messaging services.  But even if WhatsApp can morph into something more, outside of advertising, Facebook does not have a good record of taking advantage.  Outside of advertising, much of their other home-grown initiatives have not been so hot. (ie Credits, gifts, retail etc)

If this deal was simply to maintain a level of user engagement, Facebook stock should be going down. After all, $16billion in  stock is a pretty penny to absorb. Accretive it is not. If this deal was completed to morph WhatsApp into something more, Facebook's history tells me to be concerned.

In the mean time, the stock will continue to benefit from the stabile desktop pricing, saturated mobile ads and rising mobile ad prices. (That is until desktop pricing starts eroding, and growth isn't accelerating.) But I'll wait for a hiccup.

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