2014 Thomson Reuters February 2014

How could Facebook justify WhatsApp's price tag?

What the social network needs to do to make the messaging deal stack up Inputs Paying users by 2016 (m) Annual revenue per user ($) Output Multiple of 2016 earnings Whatsapp Facebook 28 28 800 1.5

How it works By Peter Thal Larsen Facebook says WhatsApp can double its active user to 1 billion. But how much do those users have to pay to justify the messaging app's $19 billion valuation? There are two inputs in blue: the number of WhatsApp users who pay for its service - which the company does not disclose - and the amount it squeezes out of them per year, currently $1 a year. The calculator assumes WhatsApp hits its 1 billion target and that annual costs - which we currently estimate at $50 million - rise less quickly. The output in red shows WhatsApp's 2016 earnings multiple, and compares that to Facebook's own valuation.

Background calculations Whatsapp Monthly active users (m) Paying users (%) Annual revenue per user ($) Implied revenue ($m) Operating costs ($m) Operating profit ($m) Tax rate %* Net income ($m) Revenue multiple Earnings multiple Facebook Revenue ($m) Net income ($m) Revenue multiple Earnings multiple *Average Facebook tax rate Eikon consensus forecasts Breakingviews estimates **6-day average up to Feb. 18 2014 450 30% 1 135 50 85 40% 51 141 373 2014 11241 3206 15 52 2016 1000 80% 1.5 1200 75 1125 40% 675 16 28 2016 18711 5930 9 28

Facebook offer Cash Facebook shares Facebook RSU's Total

183865778 45966444

Market value Share price ($)** Shares out (m) Mkt cap ($m) 65.27 2550 166426

 2014 Thomson Reuters February 2014

double its active user to 1 e users have to pay to 9 billion valuation?

the number of WhatsApp which the company does it squeezes out of them

sApp hits its 1 billion target we currently estimate at

tsApp's 2016 earnings o Facebook's own

$m 4000 12000 3000 19000