Facebook announced that it acquired Instagram for $1 Billion. The company is less than two years old, has no revenue, and about a dozen employees. Remember, acquisitions are about what the acquirer can do with the company in the future, not some multiple of revenues or profits today. Why is Instagram worth $1B?
Facebook acquired Instagram for about $30 per user, or $1B. ($30/user X 33M users = $1B) Facebook is valued at about $100 per user or $80B ($100/user X 800M users = $80B). Other popular social apps are valued around $20 to $50 per user. The monetization models need to work out about the same to justify the valuations.
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