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Did Instagram Get Screwed By Facebook's $1 Billion Payout?

Did Instagram Get Screwed By Facebook's $1 Billion Payout?

Facebook (NASDAQ: FB) was once criticized for paying $1 billion to acquire Instagram.

After paying $16 billion for WhatsApp, the previous acquisition is much less impressive.

Some might even say that $1 billion is a tad low considering how much Facebook offered to pay for Snapchat.

"Instagram didn't have 450 million users," Mark Little, a principal analyst in Ovum's Consumer Services team, told Benzinga. "Instagram was popular, and you could argue that they were the ones that accepted a billion to start off with. They could have said 'no,' as WhatsApp has done in the past. As Facebook did when it was a young startup. All of them have been given offers. If Instagram had wanted more money they should have said 'no' -- simple as that."

A Get Rich Quick Scheme (For Legitimate Entrepreneurs)

Entrepreneurs frequently talk about the big exit. The kind of exit where a massive company spends a fortune to acquire a little company that someone built in a garage.

Related: Facebook Knows What's Up With WhatsApp

After acquiring Instagram and WhatsApp, and after attempting to acquire Snapchat, Facebook has reinforced a popular belief: that entrepreneurs can get rich quick. But Facebook is not the only company that has sent that message.

"I think that message has been out there for at least five or six years already," said Little. "I think many companies are well aware of their ability to exit via an Internet giant."

That could be the "best way to make money," Little added.

This One Will Take Time To Digest

Entrepreneurs may be wondering which company Facebook will buy next, but they shouldn't get their hopes up.

"I think Facebook is gonna digest this for a while," Sterne Agee analyst Arvind Bhatia told Benzinga. "I'm not expecting a big acquisition from Facebook any time soon. I think they will digest this. I think they got, for now, the platforms that they need. With the new Facebook Paper app, which I think is also getting a lot of positive reviews, with Instagram, with WhatsApp, they're in a pretty strong position to own your phone."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Latest Ratings for FB

Feb 2021Loop CapitalMaintainsBuy
Jan 2021BMO CapitalMaintainsOutperform
Jan 2021MKM PartnersMaintainsBuy

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