Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Technology companies always get to break the rules. We don't dispute how much cash Apple actually has. Or that Amazon's stock is valued at 447 times earnings.

And so this may sit fine with you, too: Of all the companies that have made big acquisitions during this two-year-long deal boom, none have had a larger increase in goodwill as a proportion of assets than Facebook. 

For most other businesses, that kind of statistic could be alarming, as a high level of goodwill following a deal can signal the buyer overpaid. For Facebook, no worries. 

Deal Effect
Among U.S. companies that completed deals worth at least $5 billion between 2014 and now, these had the largest surge in goodwill relative to assets. Facebook's figure rose to more than 36% from less than 5%.
Source: Bloomberg

Where did it come from? Just a little over two years ago, on Feb. 19, 2014, in a curious regulatory filing that hit after U.S. market hours, Facebook announced it would acquire mobile-messaging service WhatsApp for $19 billion. It was the end of an already busy day as far as M&A news went: Mylan was being speculated about as the drug industry's next mega-merger candidate. Safeway, a grocery-store chain, and Furiex, the maker of a therapy for irritable bowel syndrome, were also both said to be seeking bids. And jewelry company Signet announced a takeover of rival Zale that morning.

Even though the surge in deal activity was fostering a "never say never" mentality, many of us looking at the Facebook filing thought, could it be a hoax? It looked legitimate, but the price seemed too outlandish to be real. Our analysis that evening would find that Facebook's offer valued WhatsApp as if it could cure cancer -- literally. The valuation would put it in a camp of biotechnology companies developing treatments for cancer and other serious ailments. 

Analysts tried to make sense of the price, because there's tremendous faith in the founders and CEOs of big tech companies, especially someone as successful as Mark Zuckerberg. It came down to two numbers: Zuckerberg's goal to to expand the WhatsApp user base to more than 1 billion people and charge them 99 cents a year (after a first year of free service). That would eventually translate into roughly $1 billion of sales -- still a lofty multiple, but a case could be made. 

This month, WhatsApp reached that milestone of 1 billion users. As for the revenue, well, that's been pushed further down the road. The 99-cent subscription fee was discontinued in January, and the company is going to look for alternative ways to monetize all those users. 

"Naturally, people might wonder how we plan to keep WhatsApp running without subscription fees...Starting this year, we will test tools that allow you to use WhatsApp to communicate with businesses and organizations that you want to hear from." - WhatsApp blog post

It cited the texts and phone calls people get from their banks when a transaction is suspected to be fraudulent or from an airline if a flight is delayed, and how this could perhaps be made easier through WhatsApp. This does sound like a big opportunity to improve services that are nice in theory but have fallen behind in practicality (sometimes those texts look like spam, and calls feel intrusive in this day and age).

But Facebook doesn't need to rush to figure this out. Revenue -- driven in large part by mobile advertising sales -- was a record again in the latest quarter at $5.84 billion, which topped analysts' average estimate for $5.37 billion. Net income more than doubled in the period to $1.56 billion. As Sarah Frier noted last month, EMarketer predicts that Facebook will capture one in every five mobile ad dollars in the U.S. this year. 

Big Growth
This is why Facebook doesn't have pressure to prove WhatsApp was worth $19 billion. Its revenue outlook is in the upper echelon of the S&P 500 Index.
Source: Bloomberg

Earlier this month, a steep climb in Facebook's stock pushed its market capitalization above that of Exxon Mobil and Berkshire Hathaway. That meant, for a time, the world's four most valuable companies were U.S. tech giants: Apple, Google's parent that now goes by Alphabet, Microsoft and Facebook. Shares of Facebook have retreated a bit from that point, but they're still up 36 percent from a year ago. 

Instagram is proof that Facebook is as skilled a dealmaker as any company that's been around longer. It paid $1 billion for the picture-sharing app in 2012 and this year, EMarketer projects it will make up 20 percent of the company's revenue from mobile devices. There's no doubt that WhatsApp is incredibly valuable, but Facebook still needs to prove it was worth 19 Instagrams. And it probably will at some point. But as with everything in tech, the conventional rules around how quickly management teams should convert acquisitions into tangible shareholder value need not apply because Facebook can get away with what most other dealmakers can't. And there's a reason for that.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. By all accounts, the iPhone maker's cash hoard tops $200 billion. However, 80 percent of that comes from what are referred to as "long-term marketable securities." The idea is that these can easily be converted into cash and thus are the equivalent of cash. But if Apple actually ever had to do this quickly, it probably wouldn't get the full value. 

  2. Relax, Amazon bulls. I know the company is investing in its growth and that its cloud division is doing really well, yadda yadda. 

To contact the author of this story:
Tara Lachapelle in New York at

To contact the editor responsible for this story:
Beth Williams at