Explain what difficulties financial analysts may face

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Question - In February 2014 Facebook acquired WhatsApp, a free instant messaging service for smartphones for $19 billion which is by far Facebook's largest acquisition. At the time of acquisition, WhatsApp was a private start-up company and had $10.2 million in revenue and a negative operating cash flow of 9.9 million for the year ending December 31, 2013. WhatsApp has a large user base and experiences rapid growth in international messaging such as Europe, Latin America, India and other parts of Asia. Its key competitors include Line and WeChat which dominate Japan and China respectively. Facebook's user growth has been stagnating in recent years and is concentrated in the U.S. and other developed countries in Europe. By February 2016, WhatsApp had a user base of over one billion, making it the most popular messaging application at the time.

(1) Explain what difficulties financial analysts may face in valuing a private company like WhatsApp in comparison to the valuation of a publically listed company.

(2) Explain the important factors Facebook would have taken into account when estimating the value of WhatsApp to be $19 billion.

Reference no: EM133004222

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