Instagram Deal Rises by 17% With Facebook’s IPO Pricing

Photograph by Instagram via Bloomberg

Instagram co-founders Kevin Systrom, right, and Mike Krieger saw the value of their deal with Facebook rise with the IPO pricing.

As if the $1 billion Instagram received for selling its photo-sharing app to Facebook wasn’t enough, the deal’s value has increased by 17 percent in the six weeks since it was announced.

On April 9, Facebook agreed to pay $300 million in cash plus 23 million shares of common stock to Instagram, a deal that Mark Zuckerberg said on his blog was worth approximately $1 billion. Multiply those shares by Facebook’s initial public offering price of $38 a share and you get  $874 million, bringing the total purchase price to $1.17 billion.

That’s not a bad return, considering the same $1 billion invested in the Standard & Poor’s 500 Index on April 9 would now be worth $944 million, while a similar investment in the Nasdaq Composite Index would be valued at about $20 million below that.

But Instagram co-founders Kevin Systrom and Mike Krieger, along with the venture backers, can’t cash out just yet. For one, the deal for the 2-year-old startup still has to close. What’s more, shares issued with the IPO are subject to a six-month lock-up, meaning the public markets will have much to say about the final value of the deal.

That’s just more incentive for Instagram’s 13-person team to help Facebook crack the mobile market. As the company said in its prospectus, mobile does not currently produce any “meaningful revenue.” For Facebook to be worth much more than $100 billion, surely that has to change.

 

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