WHY FACEBOOK BOUGHT WHATSAPP FOR $19 BILLION

WHY FACEBOOK BOUGHT WHATSAPP FOR $19 BILLION

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Facebook made a breathtaking move yesterday, buying messaging app WhatsApp for $19 billion.

Mark Zuckerberg

Even for Facebook, that’s a staggering amount to pay for a company with estimated 2013 revenue of only $20 million. It represents almost 10% of Facebook’s overall value — for a “messaging app.”

So in the wake of the announcement, the usual chorus of keyboard pundits took to Twitter to snicker together and pronounce Facebook and its CEO, Mark Zuckerberg, brain dead.

But Facebook buying WhatsApp for $19 billion isn’t a brain dead move.

It’s just bold.

Very bold.

Like other bold moves, Facebook’s WhatsApp deal could end up looking brilliant.

Or moronic.

That’s what makes it bold.

If it were guaranteed to end up looking brilliant, it wouldn’t be bold. It would be obvious, safe, and boring. And Facebook hasn’t built a service used by one-sixth of the world’s population in 10 years by being obvious, safe, and boring.

I don’t know how Facebook’s WhatsApp deal will end up looking — and neither, it’s worth noting, do any of the pundits who are pronouncing it brain dead. Based on everything I do know, though, I think the odds are that it will end up looking brilliant.

Here’s why:

  • WhatsApp has both offensive and defensive value to Facebook. WhatsApp is the fastest-growing company in history (in terms of users). If the company’s growth continues, and it can continue to “monetize” its users, it will be worth an even more mind-boggling amount of money someday. At the same time, WhatsApp’s growth is gobbling up user messaging and connection time that once could have belonged to Facebook. Now those users and their time do belong to Facebook. So buying WhatsApp allows Facebook to both own “the next Facebook” and prevent “the next Facebook” from eating Facebook’s lunch.
  • WhatsApp’s growth and usage is absolutely mind-boggling. Five years after its founding, the company has 450 million active monthly users, of which a staggering ~315 million use it every day. WhatsApp is adding 1 million new users a day — 1 million! Facebook thinks WhatsApp could have 1 billion users in a few years, and this estimate seems conservative. (Facebook itself only has 1.2 billion users.) WhatsApp also does a lot more than “text-messaging.” It allows users to send photos, videos, and voicemails to each other. In short, it allows users to do a lot of what Facebook does. So, again, Facebook really does appear to be buying “the next Facebook.”
  • WhatsApp already has a powerful revenue model, and other successful messaging apps are showing the potential for it to add many more.  WhatsApp ostensibly charges its users $1 per year after the first year. (“Ostensibly” because I’ve never heard of anyone actually paying this $1). Assuming most current users end up paying the $1/year, that’s a potential revenue stream of several hundred million dollars a year from WhatsApp’s current revenue model alone. Meanwhile, other messaging apps like Line and WeChat have demonstrated the power of “stickers,” user-to-user payments, ecommerce, and other revenue streams. When you have as many users as WhatsApp, generating even only a few dollars per year per user creates a massive business.
  • WhatsApp has very low costs, so it should eventually be wildly profitable. WhatsApp currently has only 55 employees. Assuming an all-in cost of $200,000 per employee, that’s a total cost base of $11 million. Let’s assume WhatsApp grows to, say, 300 employees over the next few years. Then it will have a cost base of only $50-$75 million. Meanwhile, if the company’s growth trajectory continues, it could easily be pulling in more than $1 billion a year of revenue in a few years. Almost all of that would be profit.
  • The names of all the smart people who pronounced Facebook itself a “fad” or “worthless” and dissed every new investment in the company as “moronic” could fill a book. Most people have consistently underestimated the power, growth potential, and value of the leading social platforms, including Facebook. Facebook’s $1 billion acquisition of Instagram, for example, which was then a revenue-less company with 13 employees, was seen as proof that Mark Zuckerberg was a clueless kid who had no business running a major company. Meanwhile, Facebook is now valued at $175 billion, and Instagram is considered one of the smartest pre-emptive acquisitions in history. $19 billion for WhatsApp is a much bolder bet than Instagram, but it, too, could end up looking a lot smarter than most people think.

Yes, but is WhatsApp really worth $19 billion?

The short answer is “no one knows.” There are some financial scenarios in which WhatsApp could end up being “worth” (in a limited financial sense) a lot more than $19 billion. There are other scenarios in which it could end up being worth a lot less. The only answerable question right now is whether WhatsApp was worth $19 billion to Facebook.

And I think the answer is yes.

The bottom line:

This is a very bold move.

Like other bold moves, it might end up looking stupid, but it also might end up looking brilliant. 

It’s also a long-term move, a bet on what the future will look like 5-10 years from now, not next quarter.

In that way, this deal is a vintage Mark Zuckerberg move.

Zuckerberg continues to be one of the few CEOs (Jeff Bezos is another) who is willing to sacrifice near-term earnings and expose himself to short-term ridicule in order to make bold long-term bets. This approach has worked out great for Amazon And it has worked out great for Facebook so far. 

In short, Facebook buying WhatsApp for $19 billion isn’t stupid. It’s just bold.

http://www.businessinsider.com/how-rich-are-whatsapp-employees-now-2014-2

http://www.businessinsider.com/how-much-sequoia-made-on-whatsapp-2014-2

 Read more: http://www.businessinsider.com/why-facebook-buying-whatsapp-2014-2#ixzz2tsRguENY

School lunch supplier closed by USDA reopens; some Hot Pockets recalled

School lunch supplier closed by USDA reopens; some Hot Pockets recalled

By Ed Payne and Chandler Friedman, CNN
updated 6:16 PM EST, Wed February 19, 2014
Watch this video

You may want to put down that Hot Pocket

STORY HIGHLIGHTS
  • USDA had closed meat plant that supplies federal nutrition programs
  • The meat plant, closed for ‘insanitary conditions’ reopened Wednesday
  • In separate action, Philly Steak and Cheese Hot Pockets may contain recalled meat
  • No illnesses have been reported in relation to the recall
 

(CNN) — A California meat company suspended by the U.S. Department of Agriculture because of “insanitary conditions” is operating again, the agency said Wednesday.

“On Monday,(the Food Safety and Inspection Service) suspended operations at Central Valley Meat Co. due to insanitary conditions at the establishment,” the agency said in a statement Wednesday. “After the company took corrective actions to address the issue, the suspension was lifted, and the plant has resumed operations.”

The Central Valley Meat Co. in Hanford, California, supplies beef for federal school nutrition programs. In 2011, it provided nearly 21 million pounds of beef, or nearly 16% of the supply.

Meanwhile, Nestlé USA has issued a recall of two varieties of Philly Steak and Cheese Hot Pockets because they may contain meat the department has already recalled.

The two brands are Hot Pockets brand Philly Steak and Cheese in three different pack sizes, and Hot Pockets brand Croissant Crust Philly Steak and Cheese in the two-pack box.

For the exact batch code, please check this release.

Earlier, the USDA had recalled more than 8.7 million pounds of meat from the Rancho Feeding Corp. because it “processed diseased and unsound animals and carried out these activities without the benefit or full benefit of federal inspection.” The Hot Pockets may contain some of this meat.

No illnesses have been reported in relation to the recall.

Eatocracy: What is ‘adulterated’ meat?

According to Nestlé, consumers should return the products to the place of purchase for a full refund or contact Nestlé consumer services at 800-392-4057.

In August 2012, Central Valley Meat was closed while the USDA investigated what it called “disturbing evidence of inhumane treatment of cattle” at the supplier following its receipt of a video from an animal welfare group.

However, the USDA said at the time the video found nothing that would compromise food safety.

Central Valley Meat was cleared to reopen a few days later after the USDA said the company “committed to a number of corrective actions, including additional humane handling training for employees and safeguards.”

In October, Central Valley Meat recalled more than 89,000 pounds of ground beef, saying it may contain small pieces of plastic, according to the USDA. No illnesses were reported.

$425M Powerball Winner!

$425M Powerball Winner!

5 things to know about the Powerball jackpot

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 Published: Wednesday, 19 Feb 2014 | 9:42 AM ET

 
   
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Adam Jeffery | CNBC
Power Ball lottery estimated jackpot stands at $400 million on February 18, 2014.

Wednesday’s Powerball drawing carries an estimated $400 million jackpot. If no one matches all the numbers, the prize potential will grow before the next drawing on Saturday. Here are five things you should know about Powerball payouts and your odds of winning. The drawing is at 10:59 p.m. EST.

GROWING INTO RECORD TERRITORY: The estimated $400 million jackpot is the sixth-largest in U.S. lottery history. Impressive, but it may not hold that record in a few years … or even a few months. More than half of the 10 largest lottery jackpots have been reached since 2012. That’s because major game changes to Powerball and Mega Millions have created larger jackpots in shorter periods of time. So if it seems like we were all just talking about the large, growing jackpot, it’s because we were.

(Read more: Snowbound? Bored? You can dream of the US Powerball $400 mln jackpot)

ROLLING, ROLLING, ROLLING: Each drawing without a winner rolls the jackpot over and makes it more lucrative. The current jackpot began its ascent at the end of 2013. That means it’s rolled over more than a dozen times without a top prize winner. If no one strikes it big on Wednesday, the jackpot only gets bigger.

LET’S SAY YOU WIN: Hold off on that beachfront mansion. Financial experts agree that you should forgo large vanity purchases and instead set up annuities and long-term trusts for descendants.

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What the Powerball jackpot can buy you
After taxes, the 3 Powerball jackpot winners will receive $58 million. CNBC’s Robert Frank reports on what the money can buy you.

YOU COULD BE A WINNER EVEN IF YOU DON’T WIN THE JACKPOT: You don’t have the main Powerball number on your ticket? Don’t fret and keep your eyes on those five other numbers. Match them and you could win a $1 million secondary prize or a $2 million secondary “Power Play” prize if you paid an extra dollar when you bought the ticket. More than 1,000 ticketholders have won these secondary prizes since 2012. Not a bad deal.

(Read more: Powerball jackpot hits $284M; well below record)

BUT REALLY, YOU’RE NOT GOING TO WIN: Odds of winning it all are about 1-in-175 million. Officials over the years have noticed the trend that the larger the jackpot, the more interest in the top prize and a surge in players. But remember your odds of winning a jackpot of $40 million is the same as if it were the current estimated $400 million. That’s because every time you play, you’re still looking to match all five white balls and the red Powerball. The odds of winning don’t change as the jackpot escalates, and they change very little even if you buy 10 tickets instead of one.