Alibaba's $215m Tango stake makes Whatsapp look stupidly overvalued (again)

LAUNCHPAD: 6.5 times as many users for 19 times the price. Facebook needs to work out how to turn its calf into a cash cow.

by Rachel Savage
Last Updated: 23 Mar 2015

Eyebrows were raised all round when Mark Zuckerberg shelled out $19bn for free messaging service Whatsapp last month. Now that Chinese e-commerce giant Alibaba has paid $215m for a stake in free chat app Tango, which values it at $1bn, it looks even more like Facebook is the latest in a long line of US tech companies that let itself get a little bit carried away.

Firstly, some numbers: Whatsapp has around 450 million monthly active users, compared to Tango’s 70 million (out of 200 million registered users). Viber, another free calling and messaging app, has 100 million monthly active users and was bought by Japanese e-commerce company Rakuten for $900m last month.

That means Facebook paid $42 each for Whatsapp’s active users, whereas Rakuten paid $9 for Viber’s and Tango’s are valued at $14 each.

Of course. users and their value don’t necessarily have a linear relationship. Firstly, the more people using a network the faster it will grow, up to a certain point (which Facebook looks to have hit), as their friends and family sign up. So Whatsapp, with a lot more users than its competitors, gets a value boost from that.

Secondly, the distribution of users is a pretty big deal. Whatsapp looks good on that front: it is the most used messaging app in countries from Spain and Germany to emerging economies like Brazil, India and Nigeria. Meanwhile, around 30% of Tango’s users are in the US, another 30% in the Middle East and 20% in Asia (where WeChat, Line and KakaoTalk dominate in China, Japan and South Korea respectively).

Finally, all apps dangling the carrot of being free need to work out how to make money out of their millions of users. Tango, a Silicon Valley start-up (obvs) founded in 2009, charges for add-ons likes photo and video filters and Viber does cheap phone calls, a la Skype. Alibaba, which is planning an IPO in New York later this year, and Rakuten will be hoping that embedding messaging into their e-commerce platforms will encourage people to buy more, as well as the giving them routes into other markets.

Whatsapp, meanwhile, charges $0.99 a year after the first 12 months – a huge revenue stream, but not exactly a multi-billion dollar, monetised gold mine. WeChat and Line get users buying games and stickers and also paying for things like taxis through the app, but Western users don’t normally take well to being flogged stuff through a free service.

Unless Zuckerberg can figure out how to milk his $19bn cow, Whatsapp’s smaller competitors are going to keep making him look like a techie with too much cash to flash.

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