by Jeff Reeves | February 25, 2014 6:00 am
Investors have been captivated by the $19 billion buyout of Whatsapp by Facebook (FB).
Personally, the deal seems a bit rich. The math works out to roughly $42 per user, but right now there’s zero ad revenue at Whatsapp, and many users are on the service free of charge.
Only time will tell whether Whatsapp is ultimately a smart deal or not. But one thing that’s for certain is that the deal marks one of the biggest in the history of Internet stocks.
In fact, a tally of some of the biggest previous buyouts puts the Facebook-Whatsapp deal in the No. 2 spot.
So what are the other big buyouts in the history of internet stocks, and how did they turn out? Take a look:
Sale Price: $3.1 billion
Inflation Adjusted Price: $3.5 billion
Google (GOOG) knew that its core business of online advertising was a big deal, and looked to consolidate power in 2007 with the purchase of DoubleClick. In fact, Microsoft (MSFT) tried to complain about antitrust issues because of how dominant the internet stocks were collectively at the time.
But the deal went through, and the rest is history. Google’s total advertising revenue has tripled since the purchase, from $16.4 billion in 2007 to $50.5 billion last year.
Sale Price: $3.2 billion
Inflation Adjusted Price: $3.6 billion
Enterprise tech giant Cisco (CSCO) purchased Webex, an online collaboration software company that was the standard at the time for video conferencing and web-based presentations.
Cisco has done a lot over the last few years to restructure itself after overreach into areas including consumer electronics, but interestingly WebEx is still alive and well and actually a good example of how CSCO has refocused on web-based solutions for businesses as a growth engine. That kind of reorganization has helped make CSCO one of the most dominant internet stocks.
Sale Price: $3.6 billion
Inflation Adjusted Price: $5.1 billion
An online community of blogs (and more than a few GIFs), the GeoCities network was the third-most-visited website in the world in 1999.
Yahoo spent a pretty penny on acquiring the network, but high costs for all the data behind pictures and pages in an era when servers were much more expensive led to a big bottleneck on profits.
Of course, once Facebook (FB) blew up the old web landscape and easy-to-use platforms like WordPress emerged, Yahoo was forced to wind down GeoCities in the face of more competitive internet stocks. The service was closed at the end of 2009.
Sale Price: $4.2 billion
Inflation Adjusted Price: $6 billion
When AOL (AOL) purchased web browsing platform Netscape, it was a force to be reckoned with. But now AOL is struggling, and Netscape went from a dominant a market share of more than 90% to effectively zero in the decade after the deal.
Still, Netscape engineers went on to create the Mozilla Firefox browser and founder Marc Andreessen has gone on to play a prominent role as an investor in other internet stocks, including current online powerhouses LinkedIn (LNKD) and Twitter (TWTR) among others.
Purchase Value: $6.3 billion
Inflation Adjusted Price: $7.1 billion
Microsoft (MSFT) paid more than it ever had for a buyout in order to acquire the digital marketing network aQuantive in 2007. The hopes was that online ad agency would help it close the gap separating it from top internet stocks Google (GOOG) and Yahoo (YHOO).
Unfortunately, the company wrote off nearly the entire price tag a few years later. Oh well!
Purchase Value: $5.7 billion
Inflation Adjusted Price: $8 billion
Broadcast.com seemed full of potential in the early days of the internet stocks boom, and Yahoo (YHOO) paid big bucks to acquire the early entrant into online radio.
Unfortunately, dial-up internet made streaming painfully slow, and the content library just wasn’t impressive enough to attract user growth. These days, you’d be hard pressed to find evidence it ever existed at all … save, of course, the high profile of its founder Mark Cuban.
Purchase Value: $8.5 billion
Inflation Adjusted Price: $8.8 billion
Actually, eBay (EBAY) bought Skype first for $2.6 billion in 2005, on the way to become one of the top internet stocks. It then sold a majority stake in 2009, before Microsoft (MSFT) swooped in and bought the whole thing for $8.5 billion in 2011.
Part of the reason MSFT paid so much, according to analysts, was the unique structure of the deal that allowed Microsoft to use foreign cash for the deal and thus avoid hefty U.S. taxes in the process.
Purchase Value: $10.4 billion
Inflation Adjusted Price: $12.9 billion
It was a contentious takeover that took more than a year to pull off, but Oracle (ORCL) managed to snatch up PeopleSoft in 2004. The web-based human resources software firm was very much on the cutting edge, a precursor to cloud-based HR solutions that have now become ubiquitous.
In fact, one of the current internet stocks, Workday (WDAY), was founded by the former PeopleSoft CEO who got back in the game after the bitter takeover fight with Oracle.
Purchase Value: $160 billion
Inflation Adjusted Price: $217 billion
When America Online (AOL) announced plans to acquire Time Warner (TWX) in 2000, it wasn’t just the biggest internet stocks deal of the dot-com era, but the biggest merger in corporate history. The deal was financed in stock and debt … but as everyone knows, it didn’t end well for either party.
AOL was spun off in 2009 and continues to struggle amid declining online ad rates, and Time Warner continues to splinter off struggling businesses like Time Inc. to streamline its operations in a changing media landscape.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
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