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Ask HN: Are there no irrational/incorrect valuations? [Re: WhatsApp and others]

5 points by sendos ↗ HN
Whenever a big acquisition is made, e.g. Instagram for $1B or WhatsApp for $19B, there are lots of posts here on HN about "why is it worth so much? this is insane! we are in a bubble"

And those posts are invariably met with responses that mostly agree with the valuation, and make several rational-seeming arguments why the valuation makes sense.

It seems there is no valuation for which one cannot come up with rational arguments supporting that valuation as the correct one (at least correct for the company making the acquisition).

So, I have a question for people who defend these valuations: Are there no incorrect/irrational valuations?

Off the top of my head, some reasons for valuations that can turn out to be wrong are:

1) The due-diligence on the acquired company was not thorough enough, or missed an important point

2) Expectations/predictions of where the market will be in a few years are wrong

3) Collusion between investors/stakeholders at the acquired and acquiring company, which increases the value of the acquisition so that investors in the acquired company get handsomely rewarded [how often does this happen?]

I would assume there are several more possible reasons for a bad valuation, but what I read on HN and related news sources are back-and-forths between people who are flabbergasted by the high price and people who claim that it is a perfectly good price.

Are there more nuanced positions between the above two? If yes, what are they, and why don't we see them more often on HN?

2 comments

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notastartup
I honestly think that we are in a bubble right now. Somebody today posted a 1998 AOL article highlighting the purchase of a chat company and the languages are very similar to what we read today about these type of mega buyouts. Having said that, I think that the financial forecast of Facebook is questionable at this point, if they need to keep buying billion dollar price tag items without making money from it's core product, it's a no brainer math that at somepoint in the future they will lose investors confidence and ultimately disappear. I have similar views regarding Twitter.

If Google bought this I wouldn't be worried but it seems that Facebook is more concerned about portraying the image that they are powerful and too big to fail without making enough revenue like their rivals.

Google and Microsoft have enough cash to fail many many more times than Facebook has relatively fewer chances to fail.

alok-g
Another one is just outbidding the competition, but that probably falls within #2 (via estimation what the acquisition of the company by the competition would do to your company in the long run).