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Comment by dinobones | Hacker News Reader

This makes no sense.

Assume 1,000 customers each generating $2m in ARR with contracts. That’s $2 billion. Assume generous 6x ARR valuation, that’s $12 billion.

Where is this $20 billion premium coming from? How could the board approve this? How is this fair to shareholders?

Heck, as a minor shareholder in GOOG, I don’t find this financially responsible at all.

I can’t help but think sometimes these tech acquisitions have some hint of nepotism/deeper underlying motivations behind them than meets the eye.

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It is one of the fastest growing companies in the cybersecurity space. 6x ARR is quite low for that. 15x is a great deal for Google.

I think Wiz accepted 15x because it is all-cash.

The rate at which they are still growing, a series C/D company would dream of.

[1] https://www.wiz.io/blog/100m-arr-in-18-months-wiz-becomes-th...

Google's whole business for the last 20 years has been buying, growing, and profiting handsomely from acquisitions.

And Apple on an almost 20 years old product, and Microsoft through its enterprise users, like 2 decades ago...Think about it Nvidia in 20 years is still just doing just very fast matrix calculations and idk Toyota is still making hybrids.

This assumption that a tech company is going to keep reinventing or inventing new wheels all the time has very little evidence in human history, while the opposite one, the many great tales of that super company that did so many great things and then is far more common.

The only exceptions are...academic? And that's because innovation and moving the field IS the role of research and academy, not companies returning earnings to investors.

NVIdia reinvented the graphics card towards ML with their massive software investment into CUDA, infiniband (acquisition) among other tech needed.

Wiz isn’t a new industry for Google, but adjacent expansion. Not seeing the reinvention remark.

Except their ARR is $500m and not $2bn. So that's x60?

Fastest growing but because they participated in a pay-for-play kickback scheme [1][2]?

So that number isn't really signal. Now that they're not paying CISOs to adopt the product they're not going to be growing as fast.

[1] https://www.bankinfosecurity.com/blogs/cyberstarts-program-s... [2] https://www.calcalistech.com/ctechnews/article/b1a1jn00hc

There is a correlation analysis in Jamin Ball's "Clouded Judgement" substack [1] which shows the correlation between next twelve month ("NTM") Revenue Multiples and Revenue Annual Growth Rates for public market tech / SaaS stocks.

The current Slope-Intercept is (NTM Revenue Multiple) = 36.677*(NTM Rev Growth Rate) + 2.0013. If Wiz is doubling revenue (100% Growth Rate) and they are at about $500M of revenue today [2], then the multiple according to that calculation is ~38.7 X Next Twelve Month Revenue ($1B) or $38.7B.

So, the price is in line with the market...or you could argue even a discount to it.

[1] https://cloudedjudgement.substack.com/p/clouded-judgement-31... [2] https://www.barrons.com/articles/google-stock-price-wiz-deal...

> Assume 1,000 customers each generating $2m in ARR with contracts. That’s $2 billion. Assume generous 6x ARR valuation, that’s $12 billion.

That's the thing , were any numbers released or are we all just gonna speculate here ? What is their growth rate, profit margin etc etc ? How do they fit in Google's business, can current Wiz clients be upsold on GCP more easily now? Can other clients be brought more easily to GCP now that Google has a good (I hope) cyber security solution to go with its cloud? Clearly there is some strategy going on here that is more than just the ARR of Wiz.

As a minor shareholder in GOOG as well I have no freaking idea about any of this, I sort of trust that they probably took a calculate risk and know what they're doing (and even if this is a mistake by 20B, that's not much for a company the size of Google).

We all know a lot of people frowned when YouTube was acquired.

Now we know that was an excellent deal for Google (now Alphabet), despite being a long bet.

Good to have top security talent and good cloud security tooling if you're in a cloud play.

It makes more sense if you think about how 2006 looked like: - the only way to money in 2006 was advertising and the idea of advertising in internet videos was borderline crazy (remember when internet was tv but without ads?)

- it was just one of many potential interesting players. To think it could've been Vimeo, but the founders cared more about their main project: collegehumor

What about the other companies Google acquired?

According to a few articles (and Reuters) it is $500m/year

Well 500m/year when they last raised in mid-2024. There are hints as to their growth rate from their post about their 100m ARR milestone [1] and thus one knows they went from 100m to 500m in two years (mid 2022 to mid 2024).

They're thus probably higher than 500m now although the multiple still seems really high to me. But what do I know.

[1] https://www.wiz.io/blog/100m-arr-in-18-months-wiz-becomes-th...

Did you have your conclusion in mind before running your back of the envelope calculation? Many people do this much of the time. That often results in motivated reasoning.

One way to reduce that tendency is to use multiple POVs of analysis. You could phrase it as a question instead: what assumptions would you need to change for the valuation to make sense?

Other questions: What factors are you not including? / What would it take for nepotism to survive scrutiny and how much nepotism would be tolerated?

My guess here is there are long-term strategic factors that the decision makers weighed heavily. I’d be very interested in understanding their world view, since they have much better internal visibility of both companies.

Tin foil hat time, Google regularly complies with LEO. It's often joked they are an unofficial intelligence agency; peers being CIA, NSA, FBI, etc. Wiz is a foreign-owned company with a detailed vulnerability map of more than 50% of the Fortune 100. It can be argued this is a matter of national security, and not simply business.

I don't think Google is buying Wiz because they hope that revenue from Wiz will make it worth their money.

They surely expect some kind of strategic advantage from that, probably something to do with security of their own infrastructure, or maybe competitive advantage for gaining government or gov-adjacent contracts, or maybe they were afraid that Microsoft or Amazon could buy it and hurt their existing business.

Cyber warfare and cyber defense cannot be measured in money easily.

Take a look at other Unit 8200 startups, or even Palantir. Palantir is much much much more worth than what they are on paper, especially with their Lavender AI involvements.

Cyber strategies have become so critical that it's a race between nations right now. The leading ones being Russia, Iran, China, North Korea and the US (while the US is heavily losing control, just in terms of malware and campaigns). Stuxnet forced the hands of the other nations, and they invested fully in Cyber eversince.

How is 6x generous? Alphabet's P/E is 23. That means $2 billion rev implies $46b valuation (assuming high margins)

These deals always have more than meets the eye. Google wouldn't acquire revenue at a fair market price just for revenue's sake - there's some reason they expect to get value beyond the revenue.

That doesn't mean its nepotism. It could be that they think they can triple revenue per customer with some synergy. Or any number of a large set of other possibilities.

If you want to understand this type of transaction better, you can read a book on M&A

P/E is the earnings multiple, not revenue. Your assuming high margins is doing a lot of legwork here. Often untrue for growing startups.

It’s the growing part that increases the multiple.

Sure, I was not commenting on the deal per se, but that specific argument to compare Alphabet P/E with Wiz revenue multiple of Alphabet is a deeply flawed one, and is all too common among non-finance people.

They advertise "Unified visibility and security across code, CI/CD, and cloud environments" - maybe it's google's way to siphon off proprietary code from private Azure and AWS environments in order to train their AI. Google does not own Github, they must be severely lacking in private training data.

Same fears we're very loud when Google bought YouTube. GOOG fell 15% because of that IIRC.

It was a huge bet, it paid off for many reasons, not least luck.

I remember 2005/2006 there were many websites competing for the video-website role, YouTube's luck was that...they were very permissive on uploads while competitors like Vimeo e.g. employed a reasonable amount of content moderators.

Yep, and investors' fear was that it would crumble under copyright lawsuits.

I have no basis for this thought other than speculation, but I imagine GCP having previously unaccessible data about a lot of AWS and Azure workloads of potential GCP customers, gotta be worth at least something... if a customer is generating 2m ARR for Wiz, how much of ARR they generate to AWS/Azure if they are not a GCP customer? Again, this is just speculation and I have no idea if it has any basis in reality, but this was my first thought back when they made the first offer.

Imagine you are a company, like Wiz, that is still growing fast.

Sure, your valuation could be based on revenue today. But why would you sell if you're "worth" $12bn right now, but you'll be "worth" 32bn in a few years? Why give up the control?

The only way for a company like Google to buy Wiz is to add a premium. Otherwise the company will just say "no".

This literally happened to Figma as well. And there is a history of this with companies like Instagram/WhatsApp.

In retrospect, was it stupid for Facebook to acquire Instagram/WhatsApp for large premiums?

The top shareholders might want to cash out and move on to their next venture, thus netting more money

Slightly OT but it kinda triggers me this abuse of company's worth and value words are consistently used instead of priced.

>Assume 1,000 customers each generating $2m in ARR with contracts. That’s $2 billion

Maybe they just need the tech. With Google behind, they can have 10,000 customers.

> How could the board approve this?

Disagreements on board levels are less and less frequent in the corporate world.

On top of that, many huge voters are simply ETFs, and their representatives virtually always side with management (state street, vanguard, etc have documents that explain their voting, but they are far from any kind of activist or naysayer.

There are always ulterior motives and I've seen personal and strategic being the most frequent ones.

6x arr is not a generous multiple for this size of business.

Really it makes no sense that Google would want to siphon money off to Israel?

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