Instagram’s Buyout: No Bubble to See Here

“If we look strictly at the acquisition cost per user, Facebook got a relative deal with the Instagram purchase, paying roughly $28 for each of Instagram’s 35 million users. (The median cost across all the acquisitions is about $92 per user.)”


But if you look at the payout per employee, Instagram is completely off the charts. If split equally, each of Instagram’s 13 employees would make nearly $77 million (though Wired’s Mike Isaac reported exclusively that CEO Kevin Systrom and co-founder Mike Krieger would take home $500 million themselves alone).

Andy Baio –

The author tries to prove that this is no bubble by stacking it together with other bubble purchases and using random custom-made ratios and indicators that involve absolutely no revenue or profit measures.

Yep, it sure makes sense… (( Sarcasm sign in case you didn’t get it… ))

One of the best parts of the article for me is a small comment by Paul Arnold:

“The financial measures you mention do not work well for a pre-revenue company like Instagram. Neither does looking outside the tech world where you don’t have comparable companies that can scale like this.”

It fully reveals why another bubble is growing in Sillicon Valley if this kind of reasoning is accepted and considered valid. (( please note that i have no idea about who the commenter is or if he has any relationship with the Valley.))

The good parts of this deal are that a) Instagram founders and stock-holders just made a boatload of money, money that they would probably never make and b) Facebook just got a billion dollars poorer; and anything that accelerates the end of Facebook just makes me smile a bit more.

I can’t simply wonder in my mind that most, if not every time, these large IT companies start to make these absurd value acquisitions they are always very close to their decline.

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