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First glance at financials...

 

                   

Year Ended December 31,                                                                                      2007    2008    2009      2010      2011 

    (in millions, except per share data) 

Consolidated Statements of Operations Data:                           

Revenue                                                                                                  $ 153      $ 272      $ 777      $ 1,974      $ 3,711   

Cost of revenue                                                                                                      41        124        223        493        860   

Total costs and expenses                                                                                  277        327        515        942        1,955   

Income (loss) from operations                                                                        (124 )      (55 )      262        1,032        1,756   

Net income (loss) attributable to Class A and Class B common stockholders$ (138 )    $ (56 )    $ 122      $ 372      $ 668

 

http://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm#toc287954_8

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  • 2 months later...

Facebook buys Instagram for approximately $1 billion in cash and stock. Well,... I probably wouldn't want to buy Facebook at a PE above 100, but it makes sense to pay with some overvalued currency. If they are smart, they pay mostly in stock instead of cash.

 

 

http://dealbook.nytimes.com/2012/04/09/facebook-buys-instagram-for-1-billion/

 

http://finance.fortune.cnn.com/2012/04/09/breaking-facebook-buying-instagram-for-1-billion/?section=magazines_fortune

 

 

Instagram @ Wikipedia

http://en.wikipedia.org/wiki/Instagram

 

 

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$1 Billion gets you "a free photo sharing application that allows users to take a photo, apply a digital filter, then share it on a variety of social networking services including Instagram's own."

 

 

I'm puzzled. Well I guess they paid $1+ per active facebook user...

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$1 Billion gets you "a free photo sharing application that allows users to take a photo, apply a digital filter, then share it on a variety of social networking services including Instagram's own."

 

 

I'm puzzled. Well I guess they paid $1+ per active facebook user...

 

seems like a pretty odd move.  Instagram isn't that much different than most social networking sites/apps, it just has the filter added on, and I guess all the work on the GUI for adding it, but still....

 

You both are right,... but anyway how it turns out, they hopefully pay with some overvalued currency, while it's still expensive. After facebook's IPO, they would probably have less negotiating powers.

 

Interesting to see who did provide the seed money for Instagram.

https://www.secondmarket.com/company/instagram

 

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Acquisition seems way expensive, but yes, they're paying with overpriced stock.

 

Anecdotally, I've seen Instagram being used by people more socially networked than me, and they're really into it as a platform for posting and viewing each others photos on smartphones. I had thought it was just a photo filter app, but that's not the case. I bet Facebook saw it as a competitor that had more appeal to people as a way of sharing/viewing photos on a mobile platform than the mobile Facebook app.

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I know two people at Instagram and they are awesome.

 

My guess is that Zuck knowingly overpaid because he regarded Instagram as a real threat to FB. Photo sharing is very core to FB and Instagram had what it took to potentially compete with FB.

 

 

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Guest Hester

I know two people at Instagram and they are awesome.

 

My guess is that Zuck knowingly overpaid because he regarded Instagram as a real threat to FB. Photo sharing is very core to FB and Instagram had what it took to potentially compete with FB.

 

You are probably right.

 

It goes to show how weak Facebook's network effect/moat really is, if a couple of guys in San Francisco can take $500K and in two years create a company that is such a danger to FB that they need to pay $1 billion to eliminate the threat.

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I know two people at Instagram and they are awesome.

 

My guess is that Zuck knowingly overpaid because he regarded Instagram as a real threat to FB. Photo sharing is very core to FB and Instagram had what it took to potentially compete with FB.

 

You are probably right.

 

It goes to show weak Facebook's network effect/moat really is, if a couple of guys in San Francisco can take $500K and in two years create a company that is such a danger to FB that they need to pay $1 billion to eliminate the threat.

 

It's fascinating that instagram was able to do easily infiltrate fbs business. I really think it kept Zuckerberg up at night, bc photo sharing is very core to fb and you can argue all other features are just bells and whistles on top of photos. He wanted to remove instagram from its social poker table and overpaid to do s

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You are probably right.

 

It goes to show how weak Facebook's network effect/moat really is, if a couple of guys in San Francisco can take $500K and in two years create a company that is such a danger to FB that they need to pay $1 billion to eliminate the threat.

 

Kind of a judo move, actually--Instagram wouldn't have gotten as big without Facebook and the other networks--but that leverage can then be reversed later.

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  • 2 weeks later...

Apparently, Zuckerberg did the deal on his own, and the Instagram guy actually asked for $2 billion, rather than $1 billion.

 

http://news.cnet.com/8301-1023_3-57415565-93/zuckerberg-did-$1-billion-instagram-deal-on-his-own/

 

Quite interesting.  I wonder if Bill G influenced Zuck in any way regarding this acquisition.  The Instagram deal reminds me a lot of the Skype acquisition by MSFT, where Wall Street immediately complained about overpaying without thinking about the defensive aspect of the deal. 

 

I would agree with other board members that this was a judo move.  I have to wonder whether Google was also talking to Instagram in order to try to gain some more active users for its Google+ service.  Photo sharing is, indeed, a core feature of a Facebook or Google+.  And I have yet to actually meet anyone in real life that really uses Google+.

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And I have yet to actually meet anyone in real life that really uses Google+.

 

I personally hate facebook and use G+.  My main reasons for this is the required symmetry of facebook (you have to mutually agree to be friends) versus the asymmetry of G+ (you follow and share to whoever you want).  Also, G+ has a lot more of my tech friends whose posts are actually useful versus friends/family on Facebook, who largely post things I don't care about.  That being said, there aren't that many active users on it...

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And I have yet to actually meet anyone in real life that really uses Google+.

 

I personally hate facebook and use G+.  My main reasons for this is the required symmetry of facebook (you have to mutually agree to be friends) versus the asymmetry of G+ (you follow and share to whoever you want).  Also, G+ has a lot more of my tech friends whose posts are actually useful versus friends/family on Facebook, who largely post things I don't care about.  That being said, there aren't that many active users on it...

 

The asymmetric sharing aspect of Google+ is also why I signed up for the service when I got the chance.  But I'm not an active user.  Of course, I also don't really use Facebook that much.

 

If people are interested in exploring what asymmetry sharing refers to, take a look at this presentation:

http://ross.typepad.com/blog/2011/07/asymmetric-sharing.html

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I personally hate facebook and use G+.  My main reasons for this is the required symmetry of facebook (you have to mutually agree to be friends) versus the asymmetry of G+ (you follow and share to whoever you want).  Also, G+ has a lot more of my tech friends whose posts are actually useful versus friends/family on Facebook, who largely post things I don't care about.  That being said, there aren't that many active users on it...

I am with you on this one. The symmetry of Facebook make the censorship very difficult.  When some of my friend click "like" or "comment" on hate-speech or hate-photo. It appears in my feed until I click to unsubscribe it. I have to do the unsubscribe things repeatedly on the same friend. I don't know why it is still appear in my newsfeed. And you know some hate-photo is the real nightmare when you see it. I still have it on my mind and wish that I didn't see it at first place. 

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What's strange to me about the Instagram deal is that Facebook probably could have had a few of their engineers replicate Instagram pretty quickly. It's not like Facebook is buying Instagram's users - most likely a majority of Instagram users are also FB users.

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What's strange to me about the Instagram deal is that Facebook probably could have had a few of their engineers replicate Instagram pretty quickly. It's not like Facebook is buying Instagram's users - most likely a majority of Instagram users are also FB users.

 

I tend to agree--if they had to buy them for competitive reasons, that's not much of a moat...

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What's strange to me about the Instagram deal is that Facebook probably could have had a few of their engineers replicate Instagram pretty quickly. It's not like Facebook is buying Instagram's users - most likely a majority of Instagram users are also FB users.

 

I tend to agree--if they had to buy them for competitive reasons, that's not much of a moat...

 

Moats don't necessarily mean monopoly. 

 

Facebook has a decent moat, particularly because of its partnership with MSFT.  But it could have market share taken away by a Google, Apple, or even a Twitter.  Who knows?  Maybe AAPL was interested in doing a deal with Instagram or embedding it in iOS like they did with Twitter.  It will be very difficult to judge whether the Instagram acquisition was worth it because we're talking about a counterfactual situation -- if FB had not bought Instagram and someone else had bought/partnered with it, would FB have less sticky users than it otherwise would with the Instagram purchase.

 

As to why FB didn't develop a competing solution, that wouldn't solve the problem of having Instagram users flock to a Google+ or Apple alternative if Instagram were bought by those companies.  Clearly, development cost was not the key issue for this deal.  The deal had to have been based on strategic reasons.

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http://www.bloomberg.com/news/2012-04-23/facebook-reports-sales-growth-indicates-shares-valued-at-30-89.html

 

Facebook Inc. (FB), the social network planning an initial public offering, said first-quarter profit fell 12 percent as operating costs almost doubled.

 

Net income fell to $205 million in the three months through March, Menlo Park, California-based Facebook said in a regulatory filing. Sales climbed 45 percent to $1.06 billion, a slowdown from 55 percent in the December period.

 

 

Expenses surged to $677 million, reflecting higher costs of helping marketers reach Facebook’s growing user base, which swelled by one-third to 901 million last quarter. New tools aimed at wringing more money from advertisers will probably have greater impact later this year, EMarketer Inc. said.

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