Facebook still has the cash to buy many more Instagrams

Facebook still has the cash to buy many more Instagrams

Summary: At first glance it may seem that Facebook paid more for Instagram than it responsibly could spend. Not so. Facebook still has many billions of dollars in cash, with more on the way.

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When Facebook announced plans to acquire Instagram for approximately $1 billion in cash and stock, I noted the purchase is going to cost the company 27 percent of its revenue in 2011. Facebook saw revenue of 777 million in 2009, $1.974 billion in 2010, and $3.711 billion in 2011.

I thought to myself: the amount Facebook offered for Instagram is not only huge because the startup has no business model, but because Facebook is only making a few billion a year. Then it dawned on me: Facebook actually does have the money to buy Instagram many times over, and I'm not just talking about the billion or so it has already made so far in 2012.

If we go back to just last month, you may remember the social networking giant effectively doubled its credit facility to $5 billion and secured a $3 billion bridge loan . On top of all this, when Facebook goes public in the next few weeks, it will suddenly have even more bling, thanks to its $5 billion initial public offering (IPO).

Of course Facebook isn't going to go and spend all this cash just because it can. Although it would be quite interesting if Facebook went out and bought Pinterest, don't count on it. In fact, Facebook co-founder and CEO Mark Zuckerberg said as much in his Instagram announcement: "This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users. We don't plan on doing many more of these, if any at all."

In short, while Facebook paid quite a hefty amount for Instagram, the company did not exactly break the bank in doing so. More importantly, Facebook still has the money to block its competitors from buying another hot startup on the cheap, because it still enough money to significantly bid up the price.

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Topic: Social Enterprise

Emil Protalinski

About Emil Protalinski

Emil is a freelance journalist writing for CNET and ZDNet. Over the years,
he has covered the tech industry for multiple publications, including Ars
Technica, Neowin, and TechSpot.

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4 comments
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  • waste of $$$

    how much revenue per Instagram user?
    How much is the software valued at?

    I bet it was not worth it!
    The Linux Geek
    • I guess you can't see the value

      Facebook just got BILLIONS in free stock photos from Instagram users.

      Expect a lot of them to become photos in ads for call girl services and gay bars.
      wackoae
  • Facebook got Instagram with a roll of toilet paper stocks

    They payed $10M in cash and $990 in toilet paper roll stocks (ie: none existent at today's imaginary/speculative price).
    wackoae
  • Money on paper (stock price), or credit, is not something that can easily

    be spent without consideration of the bigger implications. Having a large market value through stock, is not the same as having cash on hand, which is money earned and saved and ready for easy investments. Investors' money is available for use, but, it's something that requires a lot more care before the management goes out to invest or make purchases. If a company suddenly meets with a downturn in the market, or with its own products or services, the value of the stock could nosedive and the investors' money will have been sent down a drain with no expectation of recovery. Cash on hand, or in the bank, is something which is more real, and easier to manage, with not much worry about "pizzing" away the value to the investors.

    Using other people's money is not as simple as some would make it out to be, except, of course, unless it's government doing the spending, and there, people in government don't give a rat's azz about that spending, and the people, in general, won't understand exactly what's happening. In the private boardrooms in the corporate world, spending cannot be taken so lightly.
    adornoe