I think $1 billion is the right price, oddly enough. This always puts people in fits, but the reality is that when it comes to a fast growing company, the math isn’t about revenues or even near term revenue potential. It’s about how badly the acquiring company needs or wants it.
This was a cash and stock deal, and poised before a $100 billion IPO, Facebook’s stock is essentially monopoly money at this point. $1 billion is a rounding error, but it’s a rounding error that allows Facebook to do three things: Re-boot photos, a process which has always been the core of the social network’s glue; take out a potential competitor, since Instagram was increasingly viewing itself as another social network; and most importantly, keep Instagram out of the hands of Google or Twitter. For $1 billion of Facebook’s stock currency, all of that was a bargain.
Well put. What a lot of people seem to miss is that value does not always mean revenue or profit.