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Steal of the Century

February 26th, 2014 - 8:32 am

Market Watch’s Therese Poletti on Facebook’s monster purchase of WhatsApp:

“What’s going to happen? Who really knows? WhatsApp came out of nowhere,” Pisarski said. He singled out two smaller mobile messaging firms, Kakao and Kik, as worth watching. Kakao Corp., founded in 2010 in South Korea, has 133 million users, and Kik, founded in 2009 with 100 million users, is in Canada. Earlier this month, Kakao was close to hiring investment bankers for an IPO that would value the company at more than $2 billion, according to The Wall Street Journal.

Still, the price for WhatsApp and lofty valuations for other young companies without much revenue could spark even more zealousness and arrogance among tech entrepreneurs. It could also fuel a dangerous return to a mentality prevalent in the last dot-com bubble, when companies without a solid, stand-alone business model were acquired for huge sums by tech giants.

Deals like that one could fuel a bubble? Our entire “recovery” has been based on re-inflating the housing and equities bubbles. The underlying values simply aren’t there.

Now this Facebook/WhatsApp deal isn’t directly attributable to ZIRP or QE, but it is made possible, or at least easier by the kind of easy money floating around in the bubble. Social networking companies should never, ever earn such massive valuations, because they’re so easily disrupted. WhatsApp didn’t even exist five years ago, and already has hundreds of millions of users — who could disappear tomorrow for the Next Cool Thing. Worrywarts used to worry that Facebook was going to become the internet, for all intents and purposes. Now the worry is that Facebook has to spend $19 billion on a dubious acquisition just to protect its flanks.

It’s insanity.

All Comments   (3)
All Comments   (3)
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Fortunately, I've invested all my money in tulip bulb futures.
8 weeks ago
8 weeks ago Link To Comment

During the dot-com bubble, the market was willing to pay outrageous prices for startups because nobody knew which ones would succeed. The theory (which was by and large proven true) was that 9 out of ten would go bust, but the tenth one would go gangbusters and give you a decent return. (Market indexes don't reflect this sort of investing, so the retail investor got hosed.)

The current market is willing to pay outrageous prices for companies with decent growth, on the theory that when the crisis hits and the government comes for your cash, at least you'll have your share certificates that will still be worth something. The retail investor, with his savings in a government-controlled IRA, will get hosed.

The expected rate of deflation indicated by the current market is left as an exercise for the reader.
8 weeks ago
8 weeks ago Link To Comment
"Our entire “recovery” has been based on re-inflating the housing and equities bubbles. The underlying values simply aren’t there."

Call it a 'greater fool' recovery.
8 weeks ago
8 weeks ago Link To Comment
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