From the course: Finance Foundations: Business Valuation

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WhatsApp acquisition and using other multiples

WhatsApp acquisition and using other multiples

From the course: Finance Foundations: Business Valuation

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WhatsApp acquisition and using other multiples

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- We have looked at three common price multiples that could be used to estimate the value of a business. Price-to-earnings ratio, PE, Price-to-book ratio, PB, and Price-to-sales ratio, PS. For some very young companies, these traditional financial statement numbers don't reflect the true economic value of the company. Let's look at this issue by examining one particular case, the $22 billion acquisition of WhatsApp by Facebook in 2014. Now, note the original purchase price was reported to be $19 billion, but most of the payment was in the form of Facebook stock. And by the time the deal was finalized an increase in the value of Facebook stock pushed the total acquisition price to $22 billion and I'll use the $22 billion number in my calculations. First, let's assume that Facebook knew what it was doing in agreeing to pay $22 billion for WhatsApp. With that, we will then see what kind of price multiples are implicit in that…

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