Some fascinating facts about the Instagram sale

by Manshu on April 10, 2012

in Opinion

I had a very lengthy conversation with a friend last week about how incredible the $500 million valuation of Instagram sounded and I was stunned to find out that Facebook bought the company for 1 billion dollars yesterday!

Instagram is an app on the iPhone and Android that allows you to take photos from the phone and transform them using filters to give them a vintage look (among other things) like this image right here.

Instagram

Image Credit: nikrowell

The idea is simple, and executed very well, whether it’s worth a billion dollars or not – only Mark Zuckerberg knows!

I found several fascinating aspects about this whole story, and I think if you combine all the elements – it must be pretty unique.

1 Billion Dollars for an App

1 billion dollars is a lot of money, and I doubt that anyone could have predicted that a company with an app will sell for that much five years ago.

No Revenues

From what I’ve read – I can’t find any mention of revenues anywhere, and it is quite likely that Instagram has no revenues at all. Not low revenues, but no revenues, as in zero revenues. That a company can sell for a billion dollars without any revenues is mind boggling!

30 Million Users

Instagram has more than 30 million users, and they just recently came to Android, so that’s a very big base just riding on the iPhone for a long time.

Sign of Bubble or Brilliant Acquisition?

These huge numbers obviously make you wonder whether this is a sign of a bubble in the tech world, and if you call this a bubble, someone will be quick to remind you that Google paid $1.6 billion for YouTube in 2006 which sounded ridiculously high but turned out right in the end. I would tend to think that Mark Zuckerberg is smarter than all the analysts combined who are calling it a bubble.

12 or 13 Employees

This one is truly a wow – the whole company has just 12 or 13 employees in total! As has been repeated endlessly, those are some very valuable employees!

18 Month Old

Instagram is just 18 months old, and this is probably a record where such a young company has been valued for so much.

I’m wowed every time I think of this and I got plenty of new reactions every time I mentioned this to someone yesterday. One friend dusted off his iPhone development book and decided to give it another shot, a cousin complained that VCs don’t want to invest in big projects that solve real world problems, another friend with a young child resolved to raise his kid in the US because that’s where all the opportunities are, and another one lamented the fact that all this money doesn’t create large scale employment.

Whatever your view is – you have to agree we live in very interesting times.

Two great links about this story:

Mashable – Instagram CEO Kevin Systrom: The $400 million man?

WSJ – Insta-Rich: $1 billion for Instagram

{ 11 comments… read them below or add one }

Hemant Beniwal April 10, 2012 at 3:10 PM

Hi Manshu,
This is mind blowing – Rs 5000 Cr for an application. I read couple of books by Alvin Toffler – last one I bought in 2007 was “Revolutionary Wealth”. In this he was talking about the same “a revolutionary form of wealth that will redesign our lives”.

Reply

Manshu April 10, 2012 at 5:00 PM

Yes, exactly my reaction 5k cr for an app? Makes you wonder what’s real and what’s not.

Reply

Sanjay April 13, 2012 at 1:30 AM

Does anybody remember GeoCities which was bought for 3.4 B$
http://en.wikipedia.org/wiki/GeoCities

My opinion : Easy money goes easy way.

Long call 🙂 :
Take email, internet search or any internet property. Advertisement is the only source of revenue. When there will be too many properties/ads asking for user’s attention, user will be turned off by them. Internet is new idiot box (or a chatter box?)

Reply

Raja April 10, 2012 at 4:12 PM

I know that’s lot’s of reactions… so here goes another one, run of the mill reaction.

May be it’s a hint/signal from facebook. That this is the kind of valuation, these kind of companies deserve , so public better be ready with their money when facebook does the IPO.

Another thing that continues to amaze me is the social networking market place it self. There are so many customers/users, yet there is no place for more than 1 successful vendor. People change from one (orkut, myspace etc…) to the other (facebook) in matter of few month and never look back at the older one’s. Almost as if, it never existed. It’s so hard for bad competition (google) to take customer from good ones (facebook). Yet one never know’s what revolutionary idea is lurking just around the corner, which may take all user’s along with it.
Really mind blowing business is this, social networking. God only knows how long lasting is the moat. No wonder, most value investor’s are crying hoarse at the valuations offered!

Reply

Manshu April 10, 2012 at 4:59 PM

This is certainly not for value investors! How do you value something that has zero revenues – a billion times revenue? Oh wait, that will still be zero. We need a different kind of mindset to invest in this type of thing, and I for one don’t have that mindset!

Reply

manish mittal April 10, 2012 at 8:06 PM

Brief explanation on contra funds?
Most popular contra funds……..

Reply

Manshu April 10, 2012 at 8:40 PM

Just curious what makes you attracted towards contra funds?

Reply

Sandeep April 19, 2012 at 2:27 AM

That post (and the next one) is only someone’s attempt to rig the search engines.

Reply

Manshu April 19, 2012 at 3:49 AM

You mean this post about Instragram and Introduction to Futures and Options? Why, what makes you say that – is it stuffed with keywords or what else makes it look like it is written for search engines?

Reply

manish mittal April 10, 2012 at 8:08 PM

Brief explanation on contra funds?
Most popular contra funds……..

Reply

Manshu April 19, 2012 at 6:27 PM

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