Instagram is "worth" more than the New York Times
thenextweb.com
thenextweb.com
It'd be awesome to be able to leave my pet with other fellow pet owners. I'd be willing to take pets in my house as well to keep my cat company.
I don't care if you're selling whale shit online, if a whole lot of customers line up the second you mention your idea, you're in business whether third parties like it or not.
http://www.chicagoreader.com/Bleader/archives/2012/04/09/bre...
Whale guano. Seriously.
Perhaps Instagram should've been worth more than a billion to Google, but that's another discussion.
Google's net income was $9 billion in 2011(http://en.wikipedia.org/wiki/Google). According to Facebook's S-1 filing in February 2012, Facebook's net income for 2011 was... $1 billion(http://www.sec.gov/Archives/edgar/data/1326801/0001193125120...).
The real question still remains: Why is Instagram worth that much to Facebook?
True. But only if you have the only water on sale in the desert.
What is instagram anyway? It tints photos and uploads them? That would cost Zuckerberg or Page maybe $10k to code and roll out a clone. I don't get it. Unless they're paying the owner of a rival tap to turn it off. But then someone else will just open a new tap, the barrier to entry is low. I still don't get it.
Make no mistake, this is a crazy amount of money spent on a less then 2 year old, 13-man company. I think post-IPO, Mark might not have been able to get this as easily approved by the board of directors.
The success of these new things like Instagram and Tumblr seem to be their mindless simplicity.
Of the four engineer/developers, only one of them wasn't hired in the last few months. One of them was hired two weeks ago, one in January, another in December.
So only one developer is responsible for the app and all the servers, the others haven't hardly had time to get up to speed.
Not surprising, the iOS version is trivial since CoreImage' image processing library provides all the filters and image processing. Doing the port to Android was the hard part, although most likely they just licensed an image processing library from someone, or extracted it from GIMP's open code.
I think it is realistic to say the cost of developing the iOS version, which is what most of their 30 million customers are using, was well under $100,000.
But secondly, I'm not sure how you went from 13 people to 3, lets assume we we accept that we are only talking about the 3 people. Even if those 3 people are making only $50k yearly salary, working on this for 6 months is already costing Instagram well over $100k once you take into account office space, benefits and hardware.
Edit: I don't mean to rubbish what you're saying. I agree that it and the brand have value but to me that equates to something like $150 to maybe $250 million at a push. $1 billion is off the wall.
Edit 2: as is a $100 billion valuation for FB.
Mentally, I lump Instagram, Pinterest and other en-vogue social-ly apps together. Speaking of the latter, I would imagine they're probably rubbing their hands with glee right about now.
I largely buy the gigaom explanation (http://gigaom.com/2012/04/09/here-is-why-did-facebook-bought...). That's why the water-in-desert metaphor is, IMHO, very apt.
Deserts tend to be deserted. "The only water seller" is redundant.
What if you don't bother to drink the water? What do you call that?
Call me naive (I am), but there has to be more to this than the respective to ones needs narrative. Here's a few points that I've soaked in:
- Instagram will continue to be a separate entity
- Instagram "brand" is worth $
- Instagram revenue is worth ?
Rich and smart people make plenty of mistakes, and are just as prone to tunnel vision as the rest of us.
However, I am fairly certain they view this acquisition as protective rather than expansionary. Picking up Instagram just means it can't be used against them (FB), not that it has some hidden-to-the-masses potential for being monetized.
If it had no potential to be a sustainable business, how could it be a threat to anybody?
For FB to maintain its leadership position -- especially with an IPO around the corner no less -- it needs to periodically "eat up" any new threats that may come along. This is afterall the tech space where "low-cost barriers to entry" are common, making this industry very different from what you read in business school.
So, if I was a (future) shareholder of FB I would simply need to be wary of these periodical "write-offs". Afterall, isn't this really what happened to Yahoo? It had to keep spending money to stay relevant until their common shareholders got disillusioned?
Instagram does not produce more value for more people than the New York Times, our newspaper of record. It is an app that nearly everyone reading Hacker News could write in less than a month, and scale just as easily. Facebook could have added photo filters to its photo sharing site in less than a week and suck up a good portion of Instagram's audience. I'm still at a loss to explain why this was a good idea - but I guess we'll see if it bites Facebook in the ass.
This purchase, and the fact that people having a tiny idea are given multi-million dollar seed rounds regularly, are why I think we're in another bubble.
Now, the funny thing about this is that I can understand Larry Page thinking that he is dying of thirst from lack of penetration into the social media world. But Zuck? The smart thing would have been to let Google have it. It's 14 guys. And an app. Puhleeaz.
What this tells you is that Zuck doesn't really know what's going on and that Google can exploit this. Google has a lot more cash than Facebook, and if Google keeps playing this game, Facebook is going to be distracted as hell. And broke before too long.
Part of the problem is that Facebook is facing an employee revolt. They've been clamoring for their IPO exit for a looooong time, and they've had to put up with Zuck and his crew.
Part of the problem is that Facebook is pissing users off, especially with this new timeline nonsense. People want nothing to do with Facebook, but all of their contacts are on Facebook, and its the perfect medium for building a personal brand and connecting with friends.
Facebook is the Yahoo of social media. But it's 1999, the bubble is growing like crazy (it will pop soon) and nobody, absolutely nobody, has heard of the little company that was founded last year that will eventually come to dominate the social media world.
Oh really? Do you have the engagement stats to back that up?
A business is valuable to own if you think it may bring you more money in the future, or you think that owning it will give you an advantage over your competitors.
That's it. That's the entire thing. Nobody is trying to put a value on the relative social impact of Instagram vs the New York Times. Facebook merely calculated that they'll make more money as its owner than they would otherwise.
That our culture has seen to directly associate cash value with 'intrinsic' value is another issue entirely.
I don't think that's accurate; that assumes that 100% of businessmen make 100% of decisions purely to make more money, which I don't think is true. If you have a big pile of money, one of the things you can do with it is buy or start companies that you think will make you more money, but other things you can do include buying/starting companies you think will advance your personal goals, buying companies you'd just like to own, etc.
For example, we have a lot more wealthy tech people owning space-travel companies than I think would be justified based on the economics alone. They consider them valuable to own because they want to own a space-travel company. Similarly, there is some non-zero value, beyond its projected revenues, to owning the New York Times. I would certainly pay a non-zero amount for the social power it would gain me to own the NYT, so there you have an existence proof that the value of its social position is at least a few thousand dollars. :)
I do think there's a real difference between Jeff Bezos/etc founding a space-travel company and Facebook buying Instagram, however. Although Mark Zuckerberg is at the top, Facebook is a large organization, with likely more complex motivations than any individual.
> A business is valuable to own if you think it may bring you more value in the future […]
The mistake is conflating money and value: money can be a value, but other things, like riding into space, the prestige of owning a paper, and general quality of life are also values. A decision makes economic sense if the value you gain from it exceeds the value you give up to get it, regardless of the form those values take.
No, it's actually a very important point. Our culture bought into unbridled capitalism on the basis that it would produce a meritocratic economy in which market value approximates social ("intrinsic") value. If that is a lie, we have every grounds to reevaluate our economic model for our own good.
We can't, of course, argue that, since Facebook paid 1 billion USD for Instagram, Instagram is worth 1 billion. Simple circular argument. So, why did FB pay 1 billion dollars for Instagram?
Now, the article compares the New York Times, a well established, global corporation, which reaches millions, has lots and lots of world-class talent, physical assets, and a defined business model with profits, as an alternative buy to Instagram. Which consists of 37 million users, most of them in Facebook already, and no clear business model. For roughly the same price.
And it asks us to consider what choice we would make, supposing we were on FB's board of directors. That's it. No deep questions on the fetishism of commodities or the marginal social value of this transaction.
I think a startup with no business model tops a "defined" business model with rapidly declining profits
Let other people say what they will about the fact that such a easy to reproduce and young startup caused them to drop $1B defensively...
If instantgram shut down tomorrow, it wouldn't matter at all.
In fact, I think that if Facebook shut down tomorrow it would matter less than if the NYT did.
I have no idea if the valuations are crazy, and I don't mean to be making a point about bubbles or anything else. I just think it might be a condition of contemporary capitalism that "importance" and "value" are in many cases unrelated.
Would you care to elaborate?
Another example is Wikileaks, where the NYT played a very important role on several sides of the story. The NYT is very much responsible, especially within the US, of amplifying, editing, and creating much of the narrative around the major Wikileaks dumps it was involved with. And they aren't always a force for "good", and have done a lot to damage Assange's reputation and helped marginalize Wikileaks.
I don't think everything the NYT does is great, but they are a hugely important part of many many world-scale developments.
You could write similar things about its role as an arbiter and editor of culture, about its influence on the public discourse and the ideas that permeate contemporary life, on its role in business and consumer culture (Foxconn, as a recent example). It touches so many things, and reaches so many, as those in tech might call them, "influencers," that it permeates American life, directly and indirectly.
It is a good bet that what is printed in the New York Times in the morning, goes on tv at CNN, MSNBC and even FNC for the day.
Come to think of it, didn't the last bubble start very similarly too?
One over-inflated stock begat another and another..
maybe to you, but there's literally millions of people who think the other way around. Facebook is much more widely known around the world (especially to uneducated people) than the NYT is.
My argument isn't that people would even be aware of the changes to society. I think if the NYT disappeared, many many areas of American life would be altered in important ways, as I attempt to flesh out in other comments.
facebook wishes it did that. if the ny times disappeared, there would be a hole that could not be filled by the other news networks. the quality of news, as a whole around the globe, would suffer. There is no comparison.
we should remind ourselves to zoom out from the california coastline every once in a while.
[1]http://www.quantcast.com/facebook.com [2]http://www.quantcast.com/nytimes.com
As far as the NYT goes however, I don't believe that the impact would be much more than sadness based in nostalgia. The talent that exists there today would still exist, and be applying their skills at other institutions, both new and old.
How do you recreate the culture that comes from a history of unrivaled excellence and the role of being the "paper of record" for so many generations? That's not an easy mantle to pull out of thin air. How do you convince a younger organization, or even a smaller organization, to continue to devote resources to cover unprofitable stories like the continuing developments in Tunisia, for example.
Same with Apple, I would argue. Take all the people that work there and spread them out to competing companies and you don't necessarily get the same results.
Politically, I personally would welcome the day that says RIP to NYT -- it would be hugely helpful in getting our political system back on the track. We desperately needed intelligent and critical oversight of the state during the past and current decade and NYTimes completely (willfully, imo) dropped the ball. (They completely lost all credibility post 9/11 in my eyes. Please show me the front page headline with pictures of the huge ("tens of thousands") anti-war demo in Washington D.C. prior to invasion of Iraq. We've all seen the one for Egyptians ...)
I'm really curious, and not trying to be snarky: how old are you?
Regardless of your stated intent, you should be aware that your query comes across as a subtle form of ad-hominum. Let's discuss "all that is fit to print" and not my white chest hair ..
It's not an ad hominem if your age has a relationship to your argument. It may or may not, we don't know because your interlocutor hasn't followed up.
I was under the impression that ad hominem is about dragging irrelevant personal qualities into the debate.
For example: the topic is water quality. Joe Bloggs is troubled by the effects of pollutants in tap water.
Not an ad-hom: "He owns a company which manufactures tap water filters".
Ad-hom: "He's an atheist".
I'm not saying Facebook isn't hugely important, it is. But I think Facebook is less important than the NYT, and also might be more easily replaced.
The deadtree papers represent the old megaphone model of information dissemination (hi capital, few speakers, many listeners). It's been obsoleted.
Again, not claiming Facebook isn't very important, nor that it doesn't impact individual people directly more than the NYT. But the NYT doesn't just reflect what's happening in the world. In doing so, they also profoundly influence what's happening.
That may be shocking, but it's happening everywhere -- Newsweek was supposedly sold for $1.00 and the assumption of its debt. I certainly wouldn't be putting any money into print-based media.
Of course, the same thing also happened to Silicon Graphics in the early 00s and they really are dead now. I'm not saying it's not a worrisome sign for print media, just that it doesn't necessarily mean they won't make it through, albeit with lots of changes.
(Then he fell in love with a red-headed hooker and decided not to break up a ship building company, and help manage the company to build more ships instead.)
That being said, Instagram sold for an outrageous amount. But this article is rather naive in how stock markets work or how companies are valued.
What you said is true. But the argument of "worth more" etc. is arbitrary and just looks good in print. Same as clearing x million users etc.
So even if you had to pay 1.4 billion (a 40% premium) to buy all the shares of the NYT it still shows an interesting comparison of value.
But my point was that you'd be merely matching an offer that they'd already implicitly turned down because they expect a better offer later - sell their share of the company at the current market cap.
That can include capital preservation, e.g. maybe you'd rather have exactly 100% of your portfolio value in real terms in 20 years than 100% now, since you believe the market will go down.
Pretty much just described Facebook too. http://venturebeat.com/2010/07/21/fred-wilson/
Instagram took arguably the most important part of the mobile social process—taking photos—and made it cooler than everything else, including what Facebook, was offering.
As for the NYT v. Instagram argument, I think we can all agree the NYT's social value may outstrip its economic value. The outrage about the decline of the NYT should've started when Craigslist started offering free listings.
I've seen companies spend millions on mainframe computers used for transferring text files around, which a handful of pc-sized servers could probably do just as well.
The "easy" money in the technology sector is something that should be seriously investigated IMHO. I think everyone who works with technology has seen their share of suspicious deals. The question to ask is often: who is providing the easy money, money which can be "wasted" as long as it produces a profit?
Facebook ran on investor money up until a short while ago(a short while in major corporation age, what, 2 or 3 years?).
I wouldn't be surprised if Apple bought Instagram. But Facebook is not even established as a blue chip, it's not a money printing machine, and it just pulls U$ 1 billion out of its pocket and buys a photoshop thingy???
I find this deal hard to understand. I think U$ 1 billion has just been efficiently moved from place A to place B and that's as much sense as I can make of it.
Personally, I think the current state of valuing user data so highly is insanity. I suspect that this purchase will later be used as a prime example of another bubble, but this time a marketing bubble rather than a tech bubble.
People complaining about the troubles of newspapers tend to forget how in the nineties, when newspapers were doing very well, they all got greedy and loaded themselves with large amounts of debt in order to go on monopoly seeking acquisition sprees.
Really? I've read the times for almost a decade and just can't agree with that statement. I hardly bother anymore, unless it's to peak at Thomas Friedman or David Brook's opinion columns. I just don't find the quality of writing I'm looking for.
If I want to inform myself on an issue, I'm looking to the Economist, the Atlantic or Financial Times. NYTimes is barely on the radar to me shrugs
Don't get me wrong, the New York Times is a phenomenal brand, but they're just a run of the mill above-average news source IMHO.
The NYT is shrinking, Instagram is growing - that too, matters.
There are a bunch of folks saying that comparing acquisition price to market cap is apples vs. oranges, which may be true ... but how about market cap to market cap? By that yardstick, Yelp.com is worth 1.5 times The New York Times.
An interesting analogy can be found here with Google's acquisition of YT in 2006: http://blogs.ft.com/tech-blog/2012/04/with-its-instagram-pur...
http://investor.google.com/financial/tables.html
with
http://www.siemens.com/annual/11/_pdf/siemens_ar2011_cfs.pdf
and you'll see that Siemens had an EBITDA of eur 9,242 million, while Google had an EBITDA of 2.79 billion
Facebook has a projected EBITDA of 2 billion or so, based on 250 million in 4th quarter earnings.
So, if you applied traditional valuation methods, Siemens should be worth more than Google or Facebook. However, Siemens is more stable, while both Facebook and Google haven't tapped into more potential sources of income, and that's what investors are recognizing by valuing it that way.
Google was like a big castle with a moat protecting it. YouTube was just a moat -- no economic castle yet. Google bought them to add to their moat and further protect the castle.
No way Instagram is worth $1bb as a standalone, going-concern -- but as a defensive play for FB it might be.
All back to Clayton Christensen: modular systems disrupt integrated systems. Microsoft, Intel disrupt Apple, IBM. Instagram, Twitter, Pinterest disrupt Facebook.
>the NY Times is valued at 900 million. >just sayin'
I was a bit surprised reading that post and even more a few hours later when I read the title.
Frankly, it's humbling to think about.
This statement might make sense if Facebook were cash strapped, but in fact Facebook has plenty of cash. By paying in pre-IPO stock that is likely to be worth a lot more in a few months, Facebook is probably getting a bad deal compared to Instagram investors.
It’s true that some people think Facebook is overvalued, but there are also analysts who believe Facebook is fairly valued (http://aswathdamodaran.blogspot.com/2012/02/ipo-of-decade-my...), and few are arguing it’s as overvalued as, say, Groupon was at IPO.
Also, there are many companies that have negative EV based on that formula, yet are still functioning businesses.
Suppose I pay $60k in cash and take out a $240k mortgage to buy a house. The $60k is equity (market cap), and the $240k is debt. The value of the home is $300k. It works the same way with companies.
Now suppose someone wants to buy the business. I still have $60k worth of equity (100%). Do you think they can buy the entire business (claims on ALL of it's cash flow) for $60k? Of course not. They'd have to pay off the debt AND buy the equity. That number is $300k - the enterprise value.
Market cap is defined as the value of the outstanding equity (share price x number of shares). Period. The value of the company can be, and often is, much greater because most companies choose debt as part of their capital structure.
Startup tech companies like Instagram rarely do that. Nobody lends us money, so we're stuck with equity. So for Instagram, Market Cap (if there is such a beast for private companies) IS the enterprise value. For the NY Times, market cap is but a percentage of the enterprise value. So it turns out the headline of this article is actually quite incorrect. The NY Times, in any way you can measure, is clearly worth more than $1B.
So in your latest example, and also throughout the thread, you're confusing (or using interchangeably) the concrete sale price and a fuzzy intrinsic value. Why would the buyer of your business pay $300K upfront? All other things being equal, the sale price of the business would still be $60k, and they can be paying off debt for the next 15 years for all I know. The conventional media-reported value of the business would still be $60K, and it won't be very misleading.
In addition, not all debt is created equal. A company like Google can probably easily get, say 1B of super cheap debt on favorable terms, while something like Barnes & Noble would barely get the same 1B at much higher interest rates and repayment schedules. It's still 1B in enterprise value, but it's clearly not the same debt.
You also mentioned cash flows. So to continue with your example, if your business is actually losing money hand over fist, and has negative cash flow on top of $240K of debt, what do you think its value would be? Would it be equal to your simple enterprise value formula? What if the same business is growing at 100% per quarter with super high operating margins? Enterprise value can be just as misleading.
You'd still owe $300K in mortgage, and be out $200K of cash, but that doesn't mean the house is worth $500K.
P.S. And what's up with downvoting?
Instagram like the NYT is a business and as such is usually bought or sold with regard to it's potential to generate income, rather than it's social impact.
The liabilities for Instagram are 12 people's salary and a few servers, the liabilities involved in the NYT are simply astounding, reporters salaries, print shop salaries, marketing salaries, buildings, etc.
Instagram has people pay for the privilege of giving them content where as the NYT must pay others for their content, that difference alone is very important.
Looking at their data, Facebook feared that not acquiring Instagram is a risk to their business, so they rather lose $1 Billion than giving advantage to other social networking sites such as Google+. Mark Elliot Zuckerberg is determined to stay on top.
If so, that's a justification for Instagram being worth roughly 1% of Facebook.
Obviously this was only a factor, but probably is the factor that pushed Instagram's value over the top.
Yeah. It makes no sense. It's like comparing apples to oranges.
Han Solo, capitalist.
Also, NYT pays a lot in salaries every year, which generates a lot of value for stakeholders, just not for stockholders.
There are plenty of ways for a large company (especially an older company) to have a neutral or negative market cap, since that is based on its profit potential, not on how much economic activity it creates.
Historically and culturally speaking, I believe that the NYT offers far greater value. But, who wants to spend $1B on historical value?