Facebook’s Latest Acquisition Makes Sense Despite The Sticker Shock

April 11th, 2012 by Trefis Team
FB: Facebook logo
FB
Facebook

Facebook recently acquired a very popular mobile photo sharing service, Instagram, for more than $1 billion, in order to bolster its position in the rapidly growing social mobile photo sharing space. (See our note Facebook Snaps Up Instagram To Secure Online Pics Leadership.) Instagram is a highly engaging service with over 30 million iOS users, and racked up more than 1 million downloads within a day of its launch on Android. However, it’s not done yet and continues to make new records days after the acquisition. Facebook competes primarily with Yahoo‘s (NASDAQ:YHOO) Flickr and Google‘s (NASDAQ:GOOG) Picasa in the online photo sharing space, along with scores of smaller players.

Instagram may turn out to be a great buy for Facebook

Instagram saw over 5 million app downloads on Android in just 6 days, which makes it one of the biggest app launches ever. [1] With Android being the most popular smartphone platform, Instagram’s Android user base could become bigger than its sizable iOS user base in a couple of months, if it continues to see the same level of downloads.

Relevant Articles
  1. A 3x Expected Rise In Mounjaro Sales Is Likely To Drive Eli Lilly’s Q1
  2. What Should You Do With Danaher Stock At $250 After Q1 Beat?
  3. Will A Macau Recovery Drive MGM Stock Higher Following Q1 Results?
  4. Lockheed Martin Stock Will Likely Remain In Focus After A Stellar Q1
  5. Up 17% YTD, What To Expect From eBay Q1 Results?
  6. Rising 21% This Year, What Lies Ahead For Exxon Stock Following Q1 Earnings?

While there was a small outcry against Instagram getting acquired by Facebook, given the latter’s limited history when it comes to big acquisitions, it didn’t impact Instagram’s popularity at all. Soon after the news broke out, Instagram also became the #1 free app on the iOS App Store, for the first time ever. [2] Facebook may also integrate Instagram with its platform in the coming days, which could further boost user numbers and engagement levels across the service.

Acquiring Instagram may actually turn out to be a very wise move by Facebook. With the combined might of its own online photo sharing feature and Instagram’s mobile photo sharing apps, Facebook could easily become much bigger than any of its competitors in the photo sharing space.

We currently have a $82 billion valuation for Facebook based on discounted cash flow valuation of its advertising and virtual transactions businesses.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. A million Instagram Android app downloads in a day isn’t cool. You know what’s cool? 5 million in 6 days., TNW [↩]
  2. What Facebook backlash? Instagram becomes #1 free app on the App Store for the first time ever, TNW [↩]