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Could Facebook's Purchase Of Instagram Be The Best Acquisition Of All Time?

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Could Facebook's Purchase Of Instagram Be The Best Acquisition Of All Time?

With Instagram’s current growth trajectory not slowing down anytime soon, Facebook Inc (NASDAQ: FB)'s $1 billion acquisition of the photo-sharing app five years ago may go down as one of the smartest investments of all time.

With over 700 million users and 400 million people serving as daily active users on Instagram, the platform has been ingrained in everyday life and is a staple in pop culture. Facebook paid less than $2 per user to purchase one of the most relevant applications around.

While that number pales in comparison to Facebook’s daily active users, the platform continues an impressive growth trajectory and is expected to reach nearly 50 percent of all social media users by 2020.

In hindsight, purchasing an app that has 30 percent of all global internet users for just $1 billion was a remarkable move by Facebook. In Piper Jaffray’s annual "Taking Stock With Teens" survey, 27 percent of teenage respondents claimed that Instagram was the most important social media network. A report from Forbes put Instagram's valuation at $50 billion.

While it appeared that Snap Inc (NYSE: SNAP) was going to steal Instagram’s thunder as the most important social media network, Instagram fired back stealing its story feature, which now has over 200 million daily active users.

With Instagram serving as the go-to platform for influencer marketing, which is expected to double by 2019, Instagram’s growth and relevance does not appear to be slowing anytime soon. With social media advertising spending projected to reach $36 billion globally in 2017, Facebook is ripe to take the lion’s share of this figure.

Looking back, one of the only other acquisitions that can rival Facebook stealing Instagram for a paltry $1 billion, was when Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) bought YouTube for just $1.65 billion in 2006. The only social media platform that has higher average daily time spent rates than Facebook is Youtube, at 40 minutes per day.

"I think people underestimate how much Youtube proliferates into the entire Google ecosystem. It not only generates revenue for itself but for a lot of other Google products including Google search and Gmail,” said Sean Udall, CIO of Quantum Trading Strategies.

A 2016 analysis of Google’s valuation put Youtube’s approximate valuation at $86.22 billion. If based on YouTube’s worth based on revenue alone would put its value at $104 billion. By comparison, a 2016 study put Instagram’s value at $50 billion. It’s no question that both of these moves were a slam-dunk.

Editor's note: "Instagram is estimated to be worth more than $100 billion, if it were a stand-alone company, marking a 100-fold return for the app purchased in 2012, according to data compiled by Bloomberg Intelligence," Bloomberg said in June 2018.

Notable Mentions

A notable mention is Facebook’s acquisition of WhatsApp for $19 billion. While the move shocked some at first, some have called it the most important acquisition that Facebook has ever made. In the four years after the service launched, Whatsapp has grown much faster than Facebook ever has. Still at $42 dollars per user acquisition cost, it is tough to compete with the less than $2 per user cost that Facebook got Instagram for.

Alphabet's $3.2 billion purchase of Doubleclick also deserves a honorable mention. While it is not a household name and flew relatively under the radar, Doubleclick has played an essential role in Google's foray into online advertising, a segment where the company derives the majority of its income from.

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