David Rosenthal: belief

Transcript context

…Yeah. David, before we categorize that, I have two things to say. One is a thank you, that I want to issue as we get into the analysis here to front of the show. Turner Novak of Gelt VC for helping us tremendously in how to think through analyzing this one. Turner is a really smart person in all things consumer-social and we spent some time trying to figure out how to slice this one up. The second thing that I want to say is, I would love to quote for you how Facebook broke this down when they reported the acquisition to their investors, which I think is really illustrative of their thinking at the time. They reported a $17 billion total sales based on the price that they knew at the time, $2 billion it was for the users that they acquired, half a billion dollars for trade names, so WhatsApp has a half-billion value brand out in the world, a third of billion for technology, and then $15.3 billion of good will. I think that actually adds up to a little more than $17 billion, but that's okay. They go on to articulate (this is from the 2014 annual report) that good will generated from the WhatsApp acquisition is primarily attributed to expected synergies from future growth, from potential monetization opportunities, from strategic advantages provided in the mobile ecosystem, and from expansion of our mobile messaging offerings, which to me says, “$15.3 billion of we have no idea. We just needed to own this thing.” Now, of course this is accounting treatment and anybody who's worked in investment banking or certainly accounting knows good will is it’s just where your stuff, it’s a plug, but I think you're right, this is illustrative. I think they were thinking like, “Yeah, yeah, this is going to take a while and whatnot,” but I think Facebook was fully expecting that this was going to be a cash flow monster, just like Instagram. Yeah, so listeners, if you're new to the show, the way that we categorize these acquisitions are people, technology, product, business line, asset, or other. Occasionally, we categorize it as something that—I'm going to elect to use today—is a takeout, which is, “It is worth a lot of our money to stop this thing from existing as an independent entity or in the hands of someone else and we’re willing to pay handsomely in the form of good will to make that happen.” You can argue product, you could argue the asset of the users, certainly wasn't the business line, technology—Lord knows Facebook could build; people—there were 50 people that work there at the time. Obviously, some talented founders, lots of talented engineers, but my God, this thing was a takeout acquisition.…

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