Mark Zuckerberg's Case Study Of Facebook: Whatly Buy Whatsapp

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Everyone may have wondering why the co-founder of Facebook, Mark Zuckerberg willingly bought WhatsApp for $19 billion as the purchase price even WhatsApp was unprofitable at that point in time. Is the purchase price is fair enough for Mark Zuckerberg to pay $19 billion for the loss company? According to Cosentino (2015), she said that social networking competition was strongly dense, and making an industry analysis assumes a crucial importance in order to judge if the price tag paid by Zuckerberg was fair or not. However, in his/her case study preparation stated that the price tag could be reasonable.
Firstly, the answer should consider the desire of Facebook to enhance its customers and market power level in the Global Internet Media Industry: …show more content…

The use of a correct WACC is deeply important since a too low discount rate (d) might cause an overvaluation in the NPV of the company under analysis. A discount rate of roughly 10% should ensure a good equilibrium allowing WhatsApp to not be overvalued in the long term way. Looking to the price tag paid by Facebook to purchase WhatsApp ($19 billion), the main conclusion is that WhatsApp was not overvalued and Facebook did not overpay. Morgan Stanley’s analysts estimated that WhatsApp would been able to reach more than 2 billion users by generating an ARPU (average revenue per user) of $2.50 on 2021 at 80% margin of user paying. This analysis was supported by the prediction that WhatsApp could engage 982 million users by the end of 2014, with a total revenue of more 10 than $1 billion by 2017. Analysts were definitely bullish in estimating ARPU level, supposed to reach $3 in 2023. Consequently, EBIT margin will be extremely high (58% in 2023). Aswath Damodaraw, a finance professor at the Stern School of Business of New York, stated: “Normally, for a company to warrant a $19 billion value, it would need to generate about $1.5 billion in after-tax income. WhatsApp is nowhere near that.” Considering the WACC adopted in the valuation (9.72%), the price tag paid by Facebook ($19billion) and assuming a waiting period of five years prior to the steady state (the time before future cash flow income will be delivered), it is possible to obtain the amount

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