I was intrigued with the news that Facebook has valued and bought a company at a $1bn valuation when it has only 13 staff and never made a profit. For those of you who have never used Instagram, like me, the value in their business seems extraordinary and brings back memories of a technology bubble. The fact that an app which allows you to manipulate and share photos can have such a valuation just shows how confident the market is.
However delve a little deeper and maybe the value Facebook put on them is quite understandable, even if the technology is not unique or can be relatively easily replicated. Because when you are a business that is about to float against a backdrop of huge media hype for an estimated value of $100bn, $1bn seems like small change. Especially when Instagram was signing millions of new users to their already significant base of 27 million users, it looked for a moment at least that this company was the new darling of the internet. A position Facebook was obviously keen to protect and ensure maximum value of their IPO.
It is an expensive exercise acquiring businesses to stay at the forefront but hopefully Facebook have done enough to be able to float at a stable price and not just a short term boost. Interesting times.