INVESTORS VALUING INTERNET COMPANIES ON 'EYEBALLS' AGAIN

This story first appeared in USA Today.

The halcyon days of the Internet appear to be returning as investors are justifying sky-high valuations not on profit, but on "eyeballs."

Shares of Facebook jumped $1.57, or 2.3%, Thursday to $69.63 despite paying what appears to be a lofty $19 billion for online messaging system WhatsApp.

But investors are increasingly finding ways to justify such lofty purchase prices for Internet companies by looking at how much is being paid for "eyeballs," or users. Investors are betting mobile Internet usage is in such a nascent form getting the users is the hard part, and finding out how to make money on those users comes later.

And looking at it that way, Facebook got a bargain. By paying $19 billion for WhatsApp, Facebook is buying 450 million users at $42.22 each. Compared with the $141 per user valuation at Facebook, WhatsApp was cheap. In fact, the valuation paid for WhatsApp is lower than the per-user price on most other Internet darlings. Investors are paying $85 per user at professional networking firm LinkedIn, $52 per user at review site Yelp and $125 per user of online messaging service Twitter.

Those aren't even the highest valuations. Investors are paying $418 per user at online review site Angie's List and $748 per user at online advertising firm Google, based on the 540 million users it reported in its latest annual report. Due to its ability to mine personal data on its users and sell that data, Google commands a lofty 36 P-E based on its earnings the past 12 months, which is double that of the stock market and the technology sector.

The price Facebook paid for WhatsApp would make it more valuable than roughly half the stocks in the Standard & Poor's 500 index. WhatsApp's buyout price values it even higher than Chipotl?e Mexican Grill, at $17.1 billion, which is a constant target of investors arguing about overvaluation.

But there's a warning to investors to remember this type of "eyeball" math caused problems during the Internet bubble of 2000. Investors paid unsustainable prices for Internet initial public offerings on the idea that profits would follow users. But for many companies with broken business models, those profits never materialized, and investors suffered some of the most brutal losses in stock market history.