Thursday, February 20, 2014

How much is 14 000 000 000 €?

Facebook bought a messaging app for nearly 14 billion euros. That's a 14 with nine zeros. That's a lot of money. Facebook's revenue for 2013 was about 8 billion euros. Also a lot of money. Whatsapp's revenu for 2013 was only about 15 million euros.

Why do you want to pay a thousand times more than its yearly revenue for a company?

Probably because money is not worth anything anymore.

For 14 billion euros you can buy some countries, too. If the gross domestic product (GDP) is a value of a country, for the same amount of money you can get Botswana and Monaco together.

Botswana and Monaco at least have real value. Real land, real resources, real things.

How real is Whatsapp?

In the 17th century, tulip bulbs were rated higher than Amsterdam houses. Until someone asked himself how can it be that some little thing with hardly any intrinsic value can be worth more than a house with a large intrinsic value. Tulip mania, the world's first economic bubble was born.

Even though Whatsapp may at some point reach revenues of billions, it still has hardly any intrinsic value. The only conclusion must be that this is a new economic bubble.

If, tomorrow, a majority of Facebook users stop using it, the value of Facebook plunges.

The disturbing thing is that these kind of transactions are backed by large financial institutions that may very well run into trouble when these kind of transactions fail. And these financial institutions, we have seen over the past years, can have a devastating effect an the economy. How can it be that these disproportional transactions are possible?

Money isn't anything worth anymore. Tomorrow, all this money may be gone again.

Botswana and Monaco on the other hand will remain.

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