People Are Howling About The $1 Billion Price BusinessWeek Made Up For Amazon's Goodreads Acquisition

ScreenshotBloomberg Businessweek just published a very strange article trying to guess how much Amazon paid for Goodreads, a social network where people share what books they're reading.

In essence, the writer, Kyle Stock, tried to find comparables in recent IPOs and private financings to arrive at a value per user for social websites, comparing Goodreads to Twitter, LinkedIn, Pinterest, and Instagram. He came up with a figure of $880 million, which he rounded up to $1 billion.

Three problems with that:

• Amazon did not disclose a price for the acquisition. Had it been as high as $880 million, let alone $1 billion, the company would likely have had to disclose it as a material transaction. (Stock acknowledges the materiality issue in an aside, but that observation should have prompted him to rethink the entire premise of his story.)

• Investors value different companies in different ways. Instagram, for example, was valued so highly by Facebook not because of its revenues—it had none—but because it threatened Facebook's core photo-sharing franchise. LinkedIn, by contrast, is valued highly by investors not primarily based on its number of users but how well it monetizes them through diversified revenue streams.Technology consultant Anil Dash tore Stock apart in a comment on the piece:"This valuation is preposterous, because the methodology is preposterous. There is zero evidence that either the markets or investors use some arbitrary 'multiply users by a dollar amount' calculation to determine a valuation for these companies. Using such a formula to arrive at an absurd number is especially egregious here because people will now use the authority of this publication to say 'Businessweek reports that Goodreads sold for a billion dollars,' though that's almost certainly not the case."

• Lastly, AllThingsD's Kara Swisher actually talked to some sources and asked them how much Amazon paid for Goodreads, which raised almost $3 million from angel investors and True Ventures. They told her the real number was $150 million.

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.