Explaining Southern California's economy

Facebook buys Instagram for a cool billion

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters on October 6, 2010 in Palo Alto, California.

Facebook just announced that it's acquiring Instagram, the photo filtering and sharing app-maker, for — wait for it — $1 billion! The deal is in cash and shares, although given that Facebook doesn't actually have public shares yet, we'll have to assume that the stock part is coming from Facebook equity that now trades on private markets. Safe to assume that this equity will convert to Facebook stock when the company launches its much anticipated IPO later this year.

Instagram is only about two years old, but its users are sending upwards of 5 million photos a day to sites like Facebook and Twitter. A $1 billion valuation implies revenues of 200 million (at a conservative five-times multiple), which is just off the charts for a company so young. Particularly since Instagram is generating profits of exactly zero.