The Kids Know WhatsApp

 | Feb 21, 2014 | 10:15 AM EST
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Just ask the kids. I asked five kids yesterday while on my vacation about WhatsApp. They all said the same thing: It's the way to text when you are overseas. They were all proud WhatsApp users. They all told their parents how much money they were saving. They were thrilled that Facebook (FB) will now include it, and they will spend even more time on Facebook as their de facto homepage.

Then I thought about this company as an initial public offering and the reach and excitement it would create. I thought about the eyeballs internationally, thought about the potential to be a disruptive technology company for phone companies worldwide, thought about how it is still one more technology that is social, mobile, cloud and connective.

And I realized, right then and there, that Facebook wanted to get on the right page of IPO history, the page that asks when WhatsApp opens on that first day of trading at a $30 billion market cap why Facebook, Google (GOOG), Apple (AAPL) or the pathetic Microsoft (MSFT) didn't buy it. Why didn't these oh-so-smart companies even think about how much of a game-changer WhatsApp would be? Here you have Apple and Microsoft buying back stock. While it has helped a little for both -- and I like Apple's way of being opportunistic and aggressive -- I sure wish Apple had bought Twitter (TWTR). I know Twitter. That was a no-brainer if it could have gotten Twitter at $10 billion. I think this deal, given how much money FB has and a decent valuation of its stock on 2016 earnings, was just as easy to figure out if you are from the subversive, totally linked younger generation that Facebook, and advertisers, want.

But let's give the naysayers their due. First, "I never even heard of it" was all over the place. I was one. Of course, I could have been using this service instead of paying a carrier a lot of money, so the "never even heard of it" reason is about as stupid as it gets when you think about it. Once you did hear of it you then said, "I wish I had used it."

Second objection: It has few employees and doesn't have huge revenue. That's the same as when Gilead (GILD) bought Pharmasset in November 2011. Gilead, a very good pharma company at the time, was transformed immediately into a great one because of the potential success of Pharmasset's hepatitis C formulation, its principal compound. Gilead paid $11 billion, or $137 per share, for Pharmasset, 89% above the previous closing price, even as the stock had risen 240% over the last year and the hep C formulation wasn't even through regulatory hurdles. Gilead was at $19. It is now at $82.

If you want a laugh, go back and read the research about Gilead's folly, giving up a third of its market cap for something as unproven as a possible pill for hep C. Analysts hated the deal, just like the critics I heard yesterday.

Finally, I heard that the dilution would be horrendous -- sure, if it doesn't work. But if it does, then it won't be dilutive, meaning, if you believe in Facebook's management, as I do, you can see the synergies and possibilities and don't want to be doing some deal that adds three cents per share to 2015. You want to do a deal that makes you an even bigger and more unassailable powerhouse with more touch and reach. You have no choice if you are going to thrive instead of stagnate.

We bought some for Action Alerts PLUS. We thought we were in for a tough day initially with our first buy and we bought more when it kept going down. Funny thing is I wish we had bought twice as much.

I just hope we will get the chance.

Random Musings: Thanks so much for moving me up on the bestseller list, unusual after a book's been out that long. And reader Mike L. wonders what happens to Tesla's (TSLA) stock when CEO Elon Musk announces an SUV!



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