I came across this article today on Reddit. The tagline was, “Instead of buying Instagram for $1 billion cash, the deal was $300 million in cash and about 23 million shares of Facebook stock. The Instagram founders are out almost $300 million.” This was linked to an article at the NYTimes. You can read the full article here.
These Internet start up acquisitions deals are staggering when it comes to the amount of money being thrown around. When I heard about this deal, I thought to myself would I buy Instagram for 1 billion dollars? Probably not, because I don’t think its worth that. A key point is I’m not Facebook. Facebook was willing to buy Instagram for that. Instagram is key to their strategy. More power to them for making that gutsy purchase.
The deal wasn’t straight cash, so Instagram founders have lost book value of their stock because the stock price of Facebook has dropped. So it appears they have lost $300 million. However, I doubt any of the Instagram founder are selling Facebook shares anytime soon. I’m pretty sure Facebook’s price will soar again in the future. Don’t forget, the deal included $300 million dollars. I don’t think any of the founders are that hard up for cash if/when the official deal goes through.
The person or group that determined Instagram was worth $1 billion has a great gig. I don’t have insight into the numbers but I’m pretty sure Instagram didn’t make anywhere close to a $1 billion in revenue this past year. A key takeaway for me, be that guy or a part of the group that determines the value. The commission must be nice on a valuation that large.
Update (10/30): A bit of a tangent but during Hurricane Sandy, Instagram posted 10 pictures a second. That is very visible coverage. More information here. I’m sure that was better that any new site’s photo gallery. I think the Instagram founder have a better deal with stock. Facebook and Instagram seem more and more like a natural fit to me. However, still not completely solid on the Facebook business model.