Why The Valuation Of WhatsApp And Candy Crush's IPO Have People Afraid Of A New Tech Bubble

When it comes to making a statement about the current state of the tech world, this week's two biggest stories in Silicon Valley could not have spoken louder.

News of WhatsApp being acquired by Facebook for $19 billion and Candy Crush developer King filing for an IPO filled many a headline in the past few days, and will likely shape the discussion of startups for the next few weeks.

Much of the talk features praise for both companies, which are both very popular amongst smartphone users in their own right. WhatsApp, the mobile messenger app, has over 450 million active users, while King sees its most popular game, Candy Crush, played over a billion times per day.

No matter what way you cut it, this much is clear: WhatsApp and Candy Crush are both favorites of many iPhone and Android carriers.

But in considering the paths of both companies this week, one can't help but notice a contradiction in where they're headed. Candy Crush maker King said that by filing its IPO, and thus having its shares publicly traded on the stock market, it plans to raise $500 million and believes its total value to be around the $5 billion mark. Meanwhile, WhatsApp has been purchased for a fee that could rise up to $19 billion when all is said and done, a valuation that is nearly four times that of King.

Oh yeah, and one more thing: King, having generated $1.9 billion in revenue in 2013, makes nearly one hundred times more money than WhatsApp, which only generated the relatively measly amount of $20 million in 2013, according to Forbes.

Such a side-by-side comparison is likely to be mind-boggling to those who remember the first time their teachers explained to them elementary concepts of economics. Revenue and profit have always been taught as the be-all-end-all. At first glance, there's no getting away from it, no matter how likeable of a product it is. WhatsApp being valued at $19 billion is fundamentally wrong.

It's the type of value that can have people fearing a sense of déjà vu. It's the feeling that the world has seen a return of the type of business done during the late 90s, when a tech bubble inflated with huge companies being valued at much more money than they generated. Yet, to those within the tech industry, WhatsApp's deal seems air tight.

"I think it's a great move for them. For them we are looking at the idea of them talking about a billion users, that's a potential competitor they have just eliminated, they've taken them out of the market place," GigaOm's Om Malik said on a Bloomberg West roundtable. "And yes it is a really expensive deal, but it also reduces competition to the attention on Facebook, especially in new markets where Facebook hasn't really penetrated to that extent. So this is a great move."

The fact that Malik, a veteran journalist of the tech industry and venture capitalist, has taken no issue with WhatsApp's valuation or even entertained the thought of it being too expensive comes as no surprise.

Those within any industry will seldom see a bubble when it comes. Either that, or that just won't admit to the possibility of it happening.

Om's comments do make a huge point, however. In highlighting "attention" and "penetration" of new markets, he concentrated on the reason, in 2014, a 10-year-old social network would pay $19 billion for a 5-year-old messenger app.

In the tech world, attention is very much the currency that drives the value of companies. If a download on every phone in the world is seen as virtual real estate, Facebook's purchase comes down to a classic land grab. A bit of land in Russia, where 10 million people use WhatsApp, a huge piece of land in Germany (30 million) and all over the world; Facebook is even buying land in developing countries where it hasn't been able to popularize, until now.

And, to be fair, Facebook has hinted at monetizing WhatsApp, as it targets growth to billions of users who it says will be "ready to pay" for the service. In doing so, they are betting on two things: 1) People will always have phones, and 2) people will always want to save money. In a tech world that sees huge risks taken every day, Facebook's might actually be one of the more sensible ones.

Still, whenever a trend appears where properties or companies are valued at prices that defy the amount of green they make, questions will be raised, especially amongst those who consider themselves traditionalists.

"Facebook is no longer an investment, it's a speculation," veteran investor Kevin O'Leary said on CNBC, alluding to the aspect of risk in Facebook's deal. "That somehow you can do this over and over again, and from the old metrics overpay wildly and somehow create shareholder value in the long run. That's a speculation at best."

And that's enough to make people fear a new tech bubble.