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Facebook acquires Instagram for $1 billion

by on10 April 2012


Shareholders to receive over $780 million in total

Even though Facebook is expected to file its Initial Public Offering (IPO) next month in May, that doesn't mean the company can't score a few premium-level acquisitions here and there before committing itself to public stockholders. This morning, the company announced it will be acquiring Instagram, the extremely popular photo sharing app for iPhone and Android that attracts ridiculous amounts of hipsters and photobombers by paying homage to film-based Polaroid and Kodak cameras of the past.

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"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," said Facebook Founder and CEO Mark Zuckerberg in a blog post announcing the news. "We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience. We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook. These and many other features are important parts of the Instagram experience and we understand that. We will try to learn from Instagram's experience to build similar features into our other products. At the same time, we will try to help Instagram continue to grow by using Facebook's strong engineering team and infrastructure."

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The company will be acquiring Instagram for $1 billion dollars in cold hard cash. Meanwhile, current Instagram CEO Kevin Systrom will be making out like a bandit with $400 million to take home as a result of the deal, thanks to his 40-percent ownership in the startup. Benchmark Capital, the venture capital firm which led Instagram’s Series-A funding round in 2011, has about an 18-percent stake, netting roughly $180 million from the deal. Andreessen Horowitz and Baseline Ventures, two investment firms backing Instagram, each have about a 10-percent stake each, netting them just under $100 million from the deal. Finally, the remainder of Instagram's 13 full-time employees will each get a portion of a $100 million pool, with specific amounts awarded by how long the employee has worked at Instagram.

"Facebook will never make that $1 billion back, but it's still smart," says Patrick Moorhead, principal analyst at Moor Insights & Strategy and AMD's former corporate VP for strategy. While the move may be deemed "defensive" by many analysts and potential shareholders, Zuckerberg has stated that the company will probably hold off any future major acquisitions for a very long time.

“We don’t plan on doing many more of these, if any at all,” said Zuckerberg in a recent Facebook status update.

Last modified on 10 April 2012
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