Facebook Agrees to Buy Instagram Photo App for $1 Billion

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From Bloomberg:

Facebook Inc. (FB), the world's biggest social-networking service, agreed to buy the Instagram mobile photo-sharing application for about $1 billion in cash and stock, its biggest acquisition yet.

The transaction is expected to close later this quarter, Menlo Park, California-based Facebook said today in a statement on its site. The company plans to let Instagram remain independent from Facebook.

http://www.bloomberg.com/news/2012-04-09/facebook-...
discuss.

Comments (104)

Apr 9, 2012

How is instigram worth thaat much?!!

I doubt they had earnings of even $10MM, giving the $1B purchase a multiple of nearly 100x...

Am i crazy or is facebook?

Apr 9, 2012
USCstudent26:

How is instigram worth thaat much?!!

I doubt they had earnings of even $10MM, giving the $1B purchase a multiple of nearly 100x...

Am i crazy or is facebook?

That does seem nuts, but like with most tech acquisitions and IPOs, these companies seem to be heavily overvalued and everyone is willing to pay a premium for the perceived future cash flows of tech start-ups. Wish I was bold enough to start one of these suckers. Instagram? Really? Who woulda thunk it?

Apr 9, 2012
USCstudent26:

How is instigram worth thaat much?!!

I doubt they had earnings of even $10MM, giving the $1B purchase a multiple of nearly 100x...

Am i crazy or is facebook?

Instagram doesn't even have earnings. They probably don't even have EBIT, just like Yelp. But Yelp is valued at $1.5B so maybe FB was like... hmmm... instagram is a little bit less. Let's go with $1B.

Apr 9, 2012

Btw which banks were involved??

Apr 9, 2012

^ THIS is the question that needs answers

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Apr 9, 2012

This is a very smart buy on FB's part. FB was built around its most engaging feature, sharing and looking at photos, which is does better than any other traditional website accessed from a computer. FB sucked though at doing this via mobile, its simply too slow. Instagram is the dominate mobile photosharing platform. Think about it, without photos are you really going to use facebook? Mobile is the future, and FB has no future in social networking if its not the dominate mobile social network. Instagram has 30mm users as of last report, with FB Ad sales team already in place it should be a cake walk to monetize that. Overall $1bn is a steal for FB.

Apr 9, 2012

Does anyone else find the effects on Instagram photos annoying? I mean, seriously, we quit using 110 cameras for a reason.

Apr 9, 2012
Edmundo Braverman:

Does anyone else find the effects on Instagram photos annoying? I mean, seriously, we quit using 110 cameras for a reason.

Tell that to the incredibly large market of hipsters who love using Instagram for that retro effect it gives picture. It's a load of crap, but people will pay for anything to fit in.

Apr 9, 2012

For a company that prides itself on innovation and taking a step forward, going out and buying a company that prides itself on making a product giving the appearance of a step backward is the NKI...

Meanwhile, century-old Kodak goes bankrupt.

Apr 10, 2012

Instagram founder: "I just sold an app to Facebook for a billion dollars."

Polaroid founder: "Really what does it do, solve world hunger? Cure cancer? Result in world peace?"

Instagram founder: "No. It takes high quality digital photos and makes it look like they were taken by a shitty Polaroid."

Polaroid founder: "Son of a @#$%."

Apr 10, 2012
freeweezy123:

Instagram founder: "I just sold an app to Facebook for a billion dollars."

Polaroid founder: "Really what does it do, solve world hunger? Cure cancer? Result in world peace?"

Instagram founder: "No. It takes high quality digital photos and makes it look like they were taken by a shitty Polaroid."

Polaroid founder: "Son of a @#$%."

Instagram founder: I do have some Polaroid cameras in the attic. Might sell them in the museum in 10 years to make a couple of thousand dollars more.

Apr 10, 2012

Instagram is pretty cool in my book. It's also the quickest way to upload a picture online. You can take a pic and 10 seconds later it is on facebook, twitter, instagram and whatever other sites you may use. The effects are decent enough.

Personally, trying to project it's future cash flows would be pretty difficult in my book as I don't even know how they generate revenue now so $1B could be a bargain or insanely overvalued.

My name is Nicky, but you can call me Dre.

Apr 9, 2012
aempirei:

Personally, trying to project it's future cash flows would be pretty difficult in my book as I don't even know how they generate revenue now so $1B could be a bargain or insanely overvalued.

Yeah...I'm gonna go ahead and go with insanely overvalued.

Best Response
Apr 10, 2012

Great, this will spur another round of hipsterpreneurs and their shitty Facebook plug-in, pre-rev ideas. To paraphase a recent VC quote I heard: "Everybody wants to spend six months on an minimally viable idea and sell to Google for $20 million"

Ideas that should be worth $1 billion:
-cures for cancer
-alternative energy sources
-technology to feed billions

Ideas that should not be worth one matha-fackin billion greenbacks:
Anything that requires Facebook, Twitter, Google+, etc. to work

    • 3
Apr 10, 2012
onemanwolfpack:

Ideas that should not be worth $1B:
Anything that requires Facebook, Twitter, Google+, etc. to work

Definitely agree with you. The much anticipated web 2.0 bubble burst should happen soon. I'm getting sick and tired of hearing how every single kid from my graduating class who couldn't find a job is working on an "app start up" and thinks their company is worth > 5mil. Kids who couldn't program to save their life in undergrad are now developing apps...

Apr 10, 2012
onemanwolfpack:

Great, this will spur another round of hipsterpreneurs and their shitty Facebook plug-in, pre-rev ideas. To paraphase a recent VC quote I heard: "Everybody wants to spend six months on an minimally viable idea and sell to Google for $20 million"

Ideas that should be worth $1 billion:
-cures for cancer
-alternative energy sources
-technology to feed billions

Ideas that should not be worth one matha-fackin billion greenbacks:
Anything that requires Facebook, Twitter, Google+, etc. to work

Very well put. I'm getting tired of this as well. And I thought Magic overpaid for the Dodgers...

Apr 10, 2012
onemanwolfpack:

Ideas that should be worth $1 billion:
-cures for cancer
-alternative energy sources
-technology to feed billions

Ideas that should not be worth one matha-fackin billion greenbacks:
Anything that requires Facebook, Twitter, Google+, etc. to work

+1

Apr 10, 2012

In other news....WSO is going public.

Apr 10, 2012

Company that has never made $1 is sold for $1 billion. Just, wow.

Apr 10, 2012

Looks like we are in the wrong industry. No one in Finance will ever make this kind of money.

    • 1
Apr 10, 2012
JamesHetfield:

Looks like we are in the wrong industry. No one in Finance will ever make this kind of money.

Please, leave WSO. If you're not trolling, there's 2 possibilities; 1. You know NOTHING. 2. Look at number 1.

Apr 10, 2012

In all seriousness, why would they do this. Honestly. It doesn't make sense to me. Instagram does not realistically threaten Facebook and I fail to see how even the most aggressive projections of potential future cash flow could justify this.

"But, but, they have a lot of users." It's a photo sharing service with a filter application. It's not something that can easily be monetized, even through advertisements. Because, realistically, how do you make ads for such a service. Shit, Twitter can't figure out ads, I'm not sure how Instagram will. Then again, I'm not a web 3.5 entrepreneur. It just strikes me as something that could be dead and gone in a few years, simply because people moved on to the next thing. Again, I could be wrong, but this just seems like an impossibly rich valuation based on any sort of (hyper aggressive) FCF analysis.

Apr 10, 2012
TheKing:

In all seriousness, why would they do this. Honestly. It doesn't make sense to me. Instagram does not realistically threaten Facebook and I fail to see how even the most aggressive projections of potential future cash flow could justify this.

"But, but, they have a lot of users." It's a photo sharing service with a filter application. It's not something that can easily be monetized, even through advertisements. Because, realistically, how do you make ads for such a service. Shit, Twitter can't figure out ads, I'm not sure how Instagram will. Then again, I'm not a web 3.5 entrepreneur. It just strikes me as something that could be dead and gone in a few years, simply because people moved on to the next thing. Again, I could be wrong, but this just seems like an impossibly rich valuation based on any sort of (hyper aggressive) FCF analysis.

Instagram has 27 Million users. The company added 1 Million users within 24 hours upon the release of its Android/iOS App, and the company is forecasted to have 50 Million users by year-end. If nothing else, this acquisition has asserted the dominance of Facebook. People frequently say things along the lines of, "FB will be popular until the next Social Network, just look at MySpace and Friendster" or "The company is losing users by the day, it's only a matter of time before it becomes an old fad." If FB can acquire any competitor at will, it's not going anywhere anytime soon. The company use blew 1 BILLION...and for what? To maintain its competitive position as the premier Social Network/Photo-Sharing/Flash-Game/App-Crazy website.

Thoughts?

Apr 10, 2012

No, we are not in the middle of another tech bubble, not at all...

Apr 10, 2012

God, I can't wait for the bubble to pop so that the valuation of these shitty companies can match underlying fundamentals, i.e., they are worth nothing.

Apr 10, 2012

Based on today's stock price the New York Times is worth $947.98mm

http://www.google.com/finance?q=nyt
This is saying Instagram is worth more than the New York Times.... right....

Apr 10, 2012

They completed a Series B round at a $500 million valuation only three days ago: http://www.webpronews.com/latest-instagram-valuati...
How does the value of a company double over the weekend?

Apr 10, 2012
jordock:

They completed a Series B round at a $500 million valuation only three days ago: http://www.webpronews.com/latest-instagram-valuati...
How does the value of a company double over the weekend?

They just released a new valuation filter appropriately titled "bubble"

Rise early, work hard, strike oil.

Apr 10, 2012

because FB has the cash and u dont

Apr 10, 2012

While I'm sure Sequoia was happy with their 100% return, you'd think the prior investors would have been hesitant to sell 10% of the company's equity if there was word of a potential offer from Facebook.

Apr 10, 2012

Facebook just openly admitted they are losing popularity. Anyone else surprised?

Apr 10, 2012

One word: Tulips.

    • 1
Apr 10, 2012
Macro Arbitrage:

One word: Tulips.

I think calls of a major bubble are a bit overstated here. Facebook HAS revenue AND earnings...it realizes photo sharing / browsing is critical to continually increasing user engagement. Given that it will likely be valued at $80BN+ at the IPO (ridiculous), this is actually not THAT crazy if it is able to use the platform to increase engagement and therefore run more ads. How they plan on doing that I have no idea.

I think the difference between this tech bubble and the last tech bubble is there are actually companies that ARE monetizing successfully now. Not just FB, but LinkedIn, OpenTable, etc....so the bubble really seems to be around SOCIAL media. but with the growth of the internet users and the early success at monetization (excluding Twitter here), I can see why so many investors / companies are bidding these businesses to very high valuations. I would argue this time around the bubble is not NEARLY as big...likely a 30-50% premium over true intrinsic value versus the 1,000%+ valuation bubble we saw in a whole slew of internet companies back in 1998-2001.

disclosure: I'm long LinkedIn and OpenTable

    • 2
Apr 10, 2012

Facebook now beats Zynga's 180M purchase of Draw Something in stupid deals!

Apr 10, 2012

the crazy thing is that instagram only has ~12 employees...

Apr 10, 2012
harvardgrad08:

the crazy thing is that instagram only has ~12 employees...

this is what i was most amazed at actually. crazy.

    • 1
Apr 10, 2012

Whether they've been overvalued or not only time will tell, but one thing's for sure - Programming, apps and facebook we all use and are grateful for (just think about how many things in your daily lives are a result of automated processes, i.e. programming realised by means of robots or computers in general).

FWIW I doubt facebook just 'blows' money - these acquisitions are all strategic moves to increase popularity by Zuckerberg.

As a finance-related forum certainly there will be some discontent but we're in the digital era now and technology's only just begun stretching its wings. Its just the age we live in now. Adapt or lose out.

P.S. I'm ready for the monkey shit if you're too pussy to handle it.

Just Do It

    • 2
Apr 10, 2012
maximumlikelihood:

Whether they've been overvalued or not only time will tell, but one thing's for sure - Programming, apps and facebook we all use and are grateful for (just think about how many things in your daily lives are a result of automated processes, i.e. programming realised by means of robots or computers in general).

FWIW I doubt facebook just 'blows' money - these acquisitions are all strategic moves to increase popularity by Zuckerberg.

I agree with you. Facebook is not stupid. They are doing it for a strategic reason. Personally, I would add that Facebook didn't buy Instagram mainly for the technology. They paid to acquire the talent for the next 5 years. There is no way that the team at Instagram is going to move into FB or prevent Instagram from selling itself to Google, without this acquisition happening.

When Facebook bought them with shares, which are most likely will have locked out period, they are making sure that Instagram team will be with the firm for the short and medium term, to help them develop the infrastructure around mobile for photo sharing technology that Facebook can leverage and monetize upon.

Note: Facebook talk on Facebook phone. Facebook have not successfully monetize on mobile as yet. This could all change with adding Instagram team on their company.

Apr 10, 2012
maximumlikelihood:

Whether they've been overvalued or not only time will tell, but one thing's for sure - Programming, apps and facebook we all use and are grateful for (just think about how many things in your daily lives are a result of automated processes, i.e. programming realised by means of robots or computers in general).

FWIW I doubt facebook just 'blows' money - these acquisitions are all strategic moves to increase popularity by Zuckerberg.

As a finance-related forum certainly there will be some discontent but we're in the digital era now and technology's only just begun stretching its wings. Its just the age we live in now. Adapt or lose out.

P.S. I'm ready for the monkey shit if you're too pussy to handle it.

No need to throw shit, but I really don't think the average consumer uses that many apps. I personally don't use any (and would never pay for one) and most of the people I talk to don't use apps either. Sure, I have a smart phone and check my email, etc., but most of these "products" (especially apps) are faddish at best, and probably worthless at worst. I think that is the source of discontent for a lot of people. I can only speak for myself, but if someone has a great idea and they sell it for $1B, I think that's great. But if it's something stupid that doesn't create value or make society better and it goes out at an absurd valuation, that understandably pisses a lot of hardworking people off. There is some jealousy in that, but only because it is so completely random and disconnected from anything that makes sense.

And it's not just this company. There are some really insane multiples being applied to public companies -- like 10x revenue -- for stuff that might not even be around in 3 or 5 years.

Apr 10, 2012

I just downloaded Instagram on my phone. Didn't have to pay for anything, no advertisements, nothing to indicate someone is making money of me right now. How is this valued at $1 billion?!?!

Apr 10, 2012

Twitter has hundreds of millions of users and is a money hole. Users do not necessarily equate to money. Furthermore, we're talking about sepia toned filters.

Look, I don't give a shit how people make money (as long as it's legal and no one is being hurt by it.) I don't care if someone gets $50M for making a social network dedicated to taking a shit. What I have an issue with is the absurd stance the founders of Instagram take. I mean, read the blog post they wrote about the sale. They act like Instagram is some next-level change the world type shit. Dude, we're talking about sepia toned photo filters. It's unbelievable.

Apr 10, 2012
TheKing:

Twitter has hundreds of millions of users and is a money hole. Users do not necessarily equate to money. Furthermore, we're talking about sepia toned filters.

Look, I don't give a shit how people make money (as long as it's legal and no one is being hurt by it.) I don't care if someone gets $50M for making a social network dedicated to taking a shit. What I have an issue with is the absurd stance the founders of Instagram take. I mean, read the blog post they wrote about the sale. They act like Instagram is some next-level change the world type shit. Dude, we're talking about sepia toned photo filters. It's unbelievable.

I agree. Instagram is a billion dollar photo-sharing app. In no way does it add intrinsic value to society and because the company produces no revenue, it's value should be limited to its PP&E and Proprietary Technology. How Sequoia Capital came up with a valuation of even $500 Million is beyond me as well. My argument isn't that Instagram, which I had never heard of until today, is valued correctly. It's not FB has a reason to do this outrageous acquisitions. (1) They can it afford it and (2) it allows them to remain competitive, by acquiring patents, human talent, and the user-base.

Apr 10, 2012

So instead of web pages, "eyeballs" (read: users), and a vague promise of monetizing those eyeballs, we now have apps, users, and a vague promise of monetizing those users

Oh, and right now it's not about monetizing but simply getting more users. We'll figure the whole "making money" bit later.

I've seen this movie before, and I know how it ends

Apr 10, 2012

The other one is Groupon. Clearly, the people who founded that crappy company didn't understand what I just wrote or they would have gladly sold to Google. As it is, the stock is probably going to zero eventually. They didn't scale fast enough to beat the competition and the big boys are all involved now. Game over Groupon -- it's just a matter of time.

Apr 10, 2012
Ravenous:

The other one is Groupon. Clearly, the people who founded that crappy company didn't understand what I just wrote or they would have gladly sold to Google. As it is, the stock is probably going to zero eventually. They didn't scale fast enough to beat the competition and the big boys are all involved now. Game over Groupon -- it's just a matter of time.

At least GroupOn has Revenue. Yelp missed the boat by not selling themselves to FB. I believe Google acquired Zagat, which is a less trendy version of Yelp. Yelp doesn't last another 2 years.

    • 1
Apr 10, 2012

The purchase is more for the talent than the integration with Instagram. Maybe 60/40. Either way, I do not understand the motive.

Apr 10, 2012
Ske7ch:

The purchase is more for the talent than the integration with Instagram. Maybe 60/40. Either way, I do not understand the motive.

here's an article which explains facebook's motives to acquire instagram:

http://gigaom.com/2012/04/09/here-is-why-did-faceb...

Apr 9, 2012

This is a very smart buy on FB's part. FB was built around its most engaging feature, sharing and looking at photos, which is does better than any other traditional website accessed from a computer. FB sucked though at doing this via mobile, its simply too slow. Instagram is the dominate mobile photosharing platform. Think about it, without photos are you really going to use facebook? Mobile is the future, and FB has no future in social networking if its not the dominate mobile social network. Instagram has 30mm users as of last report, with FB Ad sales team already in place it should be a cake walk to monetize that. Overall $1bn is a steal for FB.

Apr 10, 2012

From the gigaom article:

"Instagram is the exact opposite. It has created a platform built on emotion. It created not a social network, but instead built a beautiful social platform of shared experiences."

Is this a real sentence? We're talking about fucking sepia filters!

Is this real life?

Apr 10, 2012

Its like a gold rush. SELL YOUR START-UP WHILE YOU CAN!!

"It's outrageous, egregious, preposterous. "

Apr 10, 2012

Instagram is a fad. FB overpaid them big time.

Apr 10, 2012

One billion for that piece of garbage?

Apr 10, 2012

Release an update that says you have to pay $1.99 to continue using Instagram and see how awesome their rock solid user base is. My guess is over half would drop it like a hot rock, move on with their lives, and find some other way to look pseudo-artistic to their friends.

Rise early, work hard, strike oil.

Apr 10, 2012

LOL at you people who won't pay for apps. Seriously? You drop a few hundred bucks on your phone, 5 bucks on a latte and you won't throw out 99 cents for something to do on the shitter?

If I had asked people what they wanted, they would have said faster horses - Henry Ford

    • 1
Apr 10, 2012
happypantsmcgee:

LOL at you people who won't pay for apps. Seriously? You drop a few hundred bucks on your phone, 5 bucks on a latte and you won't throw out 99 cents for something to do on the shitter?

but streaming porn is free...

If your dreams don't scare you, then they are not big enough.

"There are two types of people in this world: People who say they pee in the shower, and dirty fucking liars."-Louis C.K.

    • 1
Apr 10, 2012
happypantsmcgee:

LOL at you people who won't pay for apps. Seriously? You drop a few hundred bucks on your phone, 5 bucks on a latte and you won't throw out 99 cents for something to do on the shitter?

There are enough good free apps that it's not worth it to pay for those that aren't. I've never paid for an app because free apps do everything I want. And he's right when he says the average consumer isn't paying for apps. If it's a debate on whether or not the "tech savvy" group of consumers is paying for apps you can be damn sure that our parents aren't paying for apps. Yet they are all moving to smart phones as well. Screen Digest just came out with a report that estimates roughly 96% of all apps downloaded are free apps.

Apr 10, 2012

These companies are completely inbred. Im absolutely positive that the 50 or 100 mil users of instagram are also on FB. Its also a safe bet that FB could have created a similar photo filter app for about a billion less.

    • 1
Apr 10, 2012

If FB paid for the "talent" and not the product they basically value each employee at about $100million each. (they have about 10 employees).

Nothing is worse then wanting to take a picture only to be abruptly stopped by an ad so Instagram must remain a ad-less product in order to keep FLOW for the app going. And how does FB plan on generating at least a $1billion return on this so called "talent" when they alone as an entire company can hardly generate $1billion in profits? This is just utter ludicrous.

    • 1
Apr 10, 2012
low_key:

If FB paid for the "talent" and not the product they basically value each employee at about $100million each. (they have about 10 employees).

You must be a quant of some kind...

If I had asked people what they wanted, they would have said faster horses - Henry Ford

    • 1
Apr 10, 2012

Not read articles on this, but isn't $1bn just the headline figure? How much was paid in cash versus locked up fb stock?

it's like saying OMGZ that MD got paid $30mn ... which is nice, but not as sexy when it breaks down to $500k cash, and 29.5mm in deferred stock which doesn't vest for 5 years. Question then becomes, is fb more likely to be worth a lot more than $80bn or a lot less than $80bn in 5 years? Hell if I know. I'll never understand tech stocks and valuations.

I'ma stick to investing in real biznesses brothers.

Apr 10, 2012
NewGuy:

Not read articles on this, but isn't $1bn just the headline figure? How much was paid in cash versus locked up fb stock?

it's like saying OMGZ that MD got paid $30mn ... which is nice, but not as sexy when it breaks down to $500k cash, and 29.5mm in deferred stock which doesn't vest for 5 years. Question then becomes, is fb more likely to be worth a lot more than $80bn or a lot less than $80bn in 5 years? Hell if I know. I'll never understand tech stocks and valuations.

I'ma stick to investing in real biznesses brothers.

Surprised people are still salivating over the $1bn number while ignoring my post above. Preftigious bro trying you educate you unpreftigious bros, why you no listen?

    • 1
Apr 10, 2012

the only thing that might make this right is if they got paid in overvalued fb stock

Apr 10, 2012

People are missing the point about Instagram. Since FB now owns instagram everyone who uses instagram to post pictures to twitter and all these other places Facebook owns that now too. This is just a marketing technique, Facebook realizes that users want something new so they are giving them something new.

The answer to your question is 1) network 2) get involved 3) beef up your resume 4) repeat -happypantsmcgee

WSO is not your personal search function.

Apr 10, 2012

commentary from PeHub Wire:

What the Facebook-Instagram Deal Means

By: Jonathan Marino

As of about 1PM Eastern time Monday, typing 'Instagram monetize' into Google would yield top results that only wondered aloud: 'How will Instagram monetize itself' or something to that effect.

In fact, as Pinterest has ramped itself up to an eye-popping round, the tech blogosphere asked whether Instagram would be able to generate any cash for itself at all. Well, now, it doesn't seem to much matter. Facebook has acquired Instagram in a billion-dollar cash-and-stock deal, just as the social networking titan is revving its engines for the IPO.

While, on the face of it, the Facebook-Instagram transaction is enough to roll eyes ($1 billion for a company barely two years old?!), for a social network looking to move into e-commerce, Team Zuck may well have scored a bargain at a time they needed to defend their Achilles' heel.

"This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users," Facebook CEO Mark Zuckerberg said in a statement. "We don't plan on doing many more of these, if any at all."

Pinterest's challenge to Facebook comes in the company's linking marketing to sharing and the Instagram acquisition helps Facebook integrate more mobile users--a group that will only continue to grow, since the photo-sharing startup just launched an Android app. Pinterest has been pegged the third biggest social network behind, of course, Facebook and Twitter. This is for good reason: better than either of its social networking predecessors, Pinterest is monetizing clicks.

The Instagram acquisition isn't just another small team pickup by Facebook, which has made more than a dozen buys on its way to becoming a listed entity--but certainly nothing of this magnitude, ever. The deal marks a tacit admission the company is in danger of falling behind on its monetization campaign and that it is strategizing for the next phase of the social network's development: into a commerce network. The deal also means that venture capitalists who were flying golden paper airplane term sheets at Pinterest, telling the company it had a $1 billion valuation, will have to come up with a better offer. If Instagram's trajectory translates to $1 billion, Pinterest may well need IPO bankers sooner than it needs any more help from VCs. Or... maybe the company should wait a few months, and raise cash via crowdfunding, as the single hottest startup on the planet. Then, let's see how much venture capitalists love crowdfunding once it takes away the asset class' newest cash cow.

Jonathan Marino is the editor of peHUB.com. Opinions expressed here are entirely his own. To weigh in with a comment, please pay our site a visit.

Apr 10, 2012

I think that the Instagram acquisition will genuinely give Facebook good value for money. Effectively, Facebook is further stepping into the mobile phone market by replacing your phone's existing camera app with instagram. This will give Facebook a more complete picture (no pun intended) of you and therefore give F'book the ability to direct even more targeted advertising to you.

Apr 10, 2012

Obviously instag ram isn't worth a billion dollars but google was also trying to buy it and that could have hurt Facebook... So basically Facebook bought it to stop google from getting it. I hope you take this into account that usuallly when two companys want something the price goes up.

Apr 10, 2012

Great- another revenueless, profitless pseudo-company that has gone from a negative real valuation to $1 billion. They could have paid me $250M to tell them not to buy it for $1 billion and saved $750M- everybody wins. I mean, 8 days before Facebook bought Instagram it's projected 'value' was $500M based on the capital it raised on the secondary market (because they need to raise money- because they have no way of generating profit) . Just you wait- people will come out of the woodworks and weave intricate stories about how this is in Facebook's interest and they are adding value, ex cetera, ex cetera. No matter how you slice it (talent play, defensive play, expansion play, synergy play, etc.), this was unjustified at that price.

Apr 10, 2012

Instagram sounds like a shady money transfer company.

Apr 10, 2012

Facebook's done. They've lost their killer instinct if they're paying a billion for that crap. They had a good run but the all that cash has made them complacent. Human nature

Apr 10, 2012

I don't understand this aquisition at all. Facebook could have easily duplicated the app and I am pretty sure they didn't gain many new user accounts in the aqusition. 1B? Who knows, maybe one of the instagram employees was a friend of Zuckerberg.

Apr 10, 2012

Clearly the WSO crowd doesn't read/use Quora - it's the best source of tech news and explanations from real "Pros", "VC's" etc.. For a real explanation as to why Instagram, a company with zero revenue, can be worth 1 BILLION dollars see the explanation below.

Personally, I believe there is a tech bubble forming in regards to acquisition prices being paid, but this "bubble" is not analogous to the Pets.com bubble in the 90's. Back then the internet was in it's infancy, and the companies were not viable because of that. Many were a bust, some survived like Amazon.. today the internet is the real world, it's real business, and it's going to stay that way FOREVER. Times have changed, and either your with 'em, or you against 'em. This has only just begun. One day the pitch books will write themselves!! haha

Top Explanation from Quora:

Facebook has a problem. After its IPO completes it needs many quarters of strong revenue and profit growth to report to convince investors to stay put and convince new ones to buy the stock.

Zuckerberg is aiming at turning the $80 to $100 billion valuation that will happen at IPO into a $500 billion to $1 trillion company. How will he do that?

Look at mobile. That's what.

Today Facebook has NO revenues from mobile. None. That's amazing, since so many people, hundreds of millions of us, use Facebook on mobile clients.

That will change very quickly after the IPO. Instagram will play a huge role here, plus Facebook gets a very talented mobile development team that has built world-leading mobile apps on iOS and Android (which got a million users in its first day).

Let's say that Facebook can turn on monetization on mobile clients. That could mean $500 million in revenue on first quarter, $700 on second, $900-$1 billion on third. Looking at it this way paying a billion for Instagram makes a LOT of sense.

Especially when you consider that the mobile team Facebook just acquired is going to be able to build a range of apps.

But that's just the beginning. Remember, Facebook is a new media company: one where the media comes to you based on what it knows about you.

Instagram adds some important new pieces of data to the Facebook databases:
It knows who you like seeing photos from. That gets Facebook a dramatically better photo "graph." That keeps it ahead of Google+, which wooed photographers strongly in its first seven months on the market.
It knows where you are when you shoot the photo. That is very important info for Facebook to know about you.
It shows a range of passions that you have. If you are a skiier, you take pictures of snow and skiing. If you are a foodie you take pictures of food at high-end restaurants. If you are into quilting, a lot of your photos will be of that. If you are into mountain biking, the same. Facebook's databases need this info to optimize the media it will bring to you. This data is WORTH SHITLOADS! Imagine you're a ski resort and want to reach skiiers, Instagram will give them a new way to do that, all while being far more targeted than Facebook otherwise could be.
Instagram will let Facebook develop a new kind of Open Graph advertising. One where Facebook will be able to offer mobile developers a lot of money in return for opening their apps up to Open Graph. Venture capitalists in Silicon Valley are slobbering over this new potential revenue stream, so having lots of VC buy-in (they just got a nice payday) will be very important. Imagine that Benchmark now "asks" all of its member companies to support such a new advertising scheme? This could result in billions of revenues for Facebook and member companies.

And, there are probably a few more things elsewhere that this acquisition will do for Facebook.

"Anything worth having is worth working for" - Andrew Carnegie

Apr 10, 2012

^That shit cray. You gotta love/hate what you can do with technology nowadays.

If your dreams don't scare you, then they are not big enough.

"There are two types of people in this world: People who say they pee in the shower, and dirty fucking liars."-Louis C.K.

Apr 10, 2012

Have you used Instagram? It's not a hard program to write, in fact it was written and published in 8 weeks. Facebook could've written a similar product for less than $100k.

The play was mobile and from what I've read international since Instragram is very popular in asia, where Facebook is not as much.

Nevertheless, Instagram has no monetization capabilities in its current form. All this buy was 30 MM users for $1 billion, ~ $33/Instagram user. In the S-1, Facebook earned $3700MM over 800MM users in 2011, or $4.62/facebook user. Note also operating margins declined in 2011 versus 2010. Instagram represents a 8x ROI per user.

Apr 10, 2012

the article is interesting DSM, it pointso ut that last bubble was massive because internet was in infancy, last time I checked monetization of users (esp. on a mobile platform) is also in its infancy. Sounds familiar?

But this time, like all the other times, is different.

Apr 10, 2012

This is the finance version of the "bridge to nowhere." A misallocation of resources of this magnitude hasn't been seen since the collapse of the Soviet Union.

Apr 10, 2012

I think Zuck just wanted to say "You know what's cool? A billion dollars" to Systrom during negotiations. Remember what we learned from that movie: he just wants to be accepted.

Apr 10, 2012

^lolol

If your dreams don't scare you, then they are not big enough.

"There are two types of people in this world: People who say they pee in the shower, and dirty fucking liars."-Louis C.K.

Apr 10, 2012

Some more insight into the deal process......unilateral, swift negotiating. Systrom came in asking for $2 Billion like any humble man with 0 revenues would

http://online.wsj.com/article/SB100014240527023048...
I think Zuckerberg was just getting off on having different groups of people stashed in different rooms in his Palo Alto house.

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Apr 10, 2012

Such a smart buy, can't see any reason for FB not to buy it ...

Apr 10, 2012

It was a smart buy but the amount was unjustified. Zuckerberg could have paid 500 million for instagram instead of forking out a billion.

Apr 10, 2012
jenius121:

It was a smart buy but the amount was unjustified. Zuckerberg could have paid 500 million for instagram instead of forking out a billion.

Wish we could somehow dive into what the auction process or evaluation process was like for this. My first instinct is to agree with this statement, but I can't think that they didn't go make a $1B acquisition without consulting with some BB.

Apr 10, 2012

At a certain point, the only reason I'm forking over my hard-earned dollars is for one of three broadly defined reasons:

(1) I'm getting immediate value in return (An In N Out Burger, Movie Ticket, or Handjob all fall into this category)

(2) I'm getting lasting value in return (A Car or the new iPad)

(3) I'm one day going to see a return on my investment. If not, I would simply spend more on (1) or (2). After all, what's the point of this category if not to boost your future potential to engage in (1) and (2)?

Now, I don't know enough about social media, or really, any of this generation of Web 2.0 companies, to speak to this acquisition cogently. That said, to my untrained eyes, we had here a company (Instagram) with neither earnings nor legitimate earnings prospects, and I wouldn't pay somebody to pay their bills, even if they happened to be very talented people. I'll grant that Instagram is more valuable to Facebook than it would be to any other competitor, but I suppose it's my instinct to be very critical of a deal that my accounting class friends post on their wall going, "Whoooaaah!"

Then again, if Facebook's valuation of $100 Billion is to be believed, then I suppose spending a paltry $1 Billion to shore up its competitive position, acquire some talent, get access to an (admittedly very good) mobile platform, and retain their all-important "Cool/Hipster-Friendly/Shallow Bitches Love Us" factor, then I could definitely see the rationale.

Ultimately, it's not going to matter, because the winners and losers in the Technology world seem about as random as random could be, and who knows what companies we're going to be talking about in 7 to 10 years? I assume not this set.

Apr 10, 2012

Been out of tech startup game for a while, but I still call bullshit on this. Didn't read his article so maybe he has some more substantive data to back up his claims (user analytics doesn't count in my book to swap out for at minimum a basic valuation), however I don't think it takes much a of a .5 a brain cell to see through this.

Instagram is a fun little app that tons of hipsters and wannabee hipsters use to make pictures of their stupid dinner or make their mediocre vacation look cutting edge and artsy. I get it, it's popular given it's size and likely could maybe have some tangible value at some point, big emphasis on maybe.

However, really, how hard is it to put shit up from Instagram on FB? Answer, not. Maybe I'm missing something here, but how the fuck are you supposed to monetize a new mobile "platform" that is already widely used in conjunction with FB that is completely free as is. I guess, maybe FB has some data that shows Instagram users are so utterly dependent on taking pictures of their dinner that they'll cave and start paying for it.

Maybe this was a last minute play to capture some more "self hype" dummy valuation dollars before they go public and actually have to be accountable for these type of dumbass bolt on's to their shareholders, whether Zuck thinks it's cool or not.

In short here's my high level issue with this, and the "tech" industry by in large. For $1.0 bn FB could have bought a shit tone of acreage / proved up reserves in the Williston Basin. That's real millions of dollars of cash flowing hydrocarbons you can physically pull of the ground, send downstream and power peoples cars, homes, tar and feather parties, whatever. What FB actually bought was nine tech startup dudes (of which they already have a ton of), a name brand and a photo app they easily could've replicated just as good as the original on their own. Fail.

Apr 10, 2012
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