Not a Bubble... At All (Instagram vs. Lucasfilm) | Hacker News Reader

Not a Bubble... At All (Instagram vs. Lucasfilm)

stereothinking.com

43 pointslevifig41 comments

Comparing the acquisitions of two companies in different industries fallaciously assumes there is an objective measure of the "value" of a company.

Acquisition value != societal value.

Instagram wasn't worth $1 billion to society, it was worth $1 billion to Facebook, which works out to $30/user. Facebook can reliably turn users into gold, therefore it was a reasonable purchase for them.

Isn't that exactly the author's point: acquisition value of trendy tech companies is wildly disparate from societal value, and that disparity is not healthy or sustainable.

They're missing the point, and reso hit the nail on the head.

It's analagous to someone saying, "Academic researchers should be paid more because of what they're progressing mankind". But they're typically not paid more than those working in a for-profit organization who is also doing research.

Instagram was worth that sum to Facebook, just as Lucasarts is worth that sum to Disney. Neither are worth that much for society, though Lucasarts happen to contribute more to society over it's 40 years of existence.

no, this argument is weak. all kinds of implicit assumptions about markets and valuations. markets can be massively innefficient when dimensionalized by (for example) any other variable than information. eg. volatility. but vol has massive market value itself (see: black scholes). subject to massive externality (see: political economy). Regardless, asset bubbles are economically and politically problematic.

It sounds like you just pulled a couple terms out of your behavioral finance textbook and decided to call it a day before substantiating any of your claims.

not quite.

Which part?

Well, you wouldn't seem to be able to get through the first point. Which is an analytic critique of emh, not a behavioral one. So you either don't understand this or are mixing your metaphors. Also you argue: I don't understand X, therefore...PQR follows. Which is not solid ground, generally, to make sweeping statements.

> and that disparity is not healthy or sustainable

That's the part you need to justify, since that's the only part that has anything to do with a supposed bubble.

I don't need to justify it, because it isn't a point I'm trying to make. But there's a whole article at the link at the top of the page that attempts to justify it.

Second that. This is a horrible comparison. Not only can Facebook turn users into gold, Instagram was the first real threat to build a social network that could turn into a threat for Facebook. Both Facebook and Instagram started off by making photos social, extremely successful.

You just made Zuck sound like Gargamel and the users like Smurfs.

Facebook said it themselves, it's less about '$1bn' and more about '1%'.

Agree. That's the definition of a "acquisition bubble": when acquisition value is so far higher than societal value. For the record: I'm not disagreeing with you. Putting things like this in perspective just makes one wonder what has led us here… :)

"Societal value" is a veeerrrry loaded term here, to the point that trying to argue from it verges on tautology. Who are you to decide what the "value" to society of a large company is?

Besides, usually when people are flinging around that ill-defined loaded term, they're comparing something like a farmer to a social media platform, where one provides obvious concrete value and the other is providing value much higher up the Maslow hierarchy. But here we're talking about two entertainment companies, one built on two-way communication and one built on the older one-way consumption model, that peculiarly 20th-century aberration. Is it really so obvious that the valuations are that wrong? I'm totally unconvinced it is so obvious that it goes without saying.

Weren't most of these users on Facebook to begin with?

This is a bit of an odd comparison. I don't see LucasFilm and Instagram as being even remotely similar. For example, the reason why Instagram was so valuable is because it was poised to challenge the #1 reason why people use Facebook. If a Facebook competitor had bought Instagram then they could have potentially toppled Facebook's position atop the social networking heap. This single fact made Instagram incredibly valuable. And it's not something that can be compared to the valuation for LucasFilm.

Still mad? Seriously? Wow.

Sometimes I compare laptops to milling machines, its fun since a used milling machine that can make a new crankshaft for a 77 GTO goes for less than a high end Macbook Retina. Money enables different things (making crankshafts for example) comparing the enablers is fun but not really something to get bent out of shape about.

I'm not exactly sure what the OP's point is, but the price/employee ratios do not make any sense outside of acquihires.

Take US Air for example, they have 30k employees and are worth 2B. That ratio is meaningles. It is even more meaningless when one programmer can eliminate 100s of jobs using automation.

I'm sure it is a useful metric for some analysis, but it doesn't seem to be in the case of instagram which seemed much more like a play to remove a question mark from institutional investors minds prior to an IPO.

Agree. That's why we're calling it a "bubble": the sheer disproportion between revenue, employee number and brand value, and price tag. I'm merely putting things in perspective, not writing a "market analysis". :)

My point is that those metrics are not always valuable to rely on. Unlike hard science, you don't have to prove their significance through statistical analysis, but you should be able to state why market cap/employee is a reasonable valuation tool.

IMO, Facebook would not have paid less for 15 employees or more for 100 employees so it seems like a poor metric.

FACEBOOK

Web app for taking and sharing pictures taken with your digital camera over ADSL broadband to brag/talk to your friends about.

2 years of existence

1 product

24 employees

30M+ users

$0 revenue

What exactly is your point? Instagram had insane adoption and was eroding Facebook's control over both pictures and mobile - the two biggest drivers of future growth over the next decade in both users and ad dollars.

Facebook bought them with overvalued stock (before IPO) so it was ~$500 million which is the same as what the VCs valued it at a month before it was acquired.

It was a good acquisition - basically a hedge against market obsolescence, easy injection of new IP and easy injection of mobile users.

Excite could've bought Google for ~$1 million back in the late 90s. Yahoo! could've had Facebook for ~$1 billion if the pressure on Zuckerberg was higher.

They choose not to buy that option. They don't exist anymore.

24 employees? There has to be more than that. I think I saw more than that just in their hiring videos.

edit: i think you may be referring to instagram. it just confused me because you titled your post with FACEBOOK in all caps. =)

I was. Back when FB was 2 years old.

Minor semantic issue, but for the record Yahoo does exist.

Does it really? Or was I in fact trying to make a point :D

One datapoint (the Instagram purchase) does not mean the industry is in another bubble.

Instagram was actually valuable to people at least, compared to the startups getting funding in the 90s. The funding of Color on the other hand was a bit reminiscent of those days though.

Instagram was a very real competitor to Facebook. They also have practically zero expenses. It took only 1% of Facebook's market cap (at the time) to acquire them.

Lucasfilm is in a very crowded space. They have a ton of expenses which results in loses a good percentage of the time. Their best days were probably behind them (especially since they chose to stop making new Star Wars movies).

Basically, this is comparing two completely different businesses in completely different markets. I think both were good deals for the acquirers.

I'll leave with this: I think selling Band Aids is a better business than Yahoo - but you're crazy if you think Yahoo doesn't have an insane higher multiple of potential.

Regardless of whether we are in a bubble or not, it's embarrassing to see how easily someone can get a blatantly fallacious comparison on the front page of Hacker News just because of its emotional resonance with some users.

Lucasfilm:

$7 billion gross over the course of 41 years with 1,001-5,000 employees (http://www.linkedin.com/company/lucasfilm).

Instagram:

$0 over 2 years with 13 employees.

That $7 billion could easily turn out to be negative profit with that number of employees. Looking at the movies Lucasfilms puts out, 90% of their profits comes from Star Wars and Indiana Jones. Its going to be very hard for them to continue sequels to these movies. Then you look at the growth of the market.

I understand Instagram doesn't have profits... but I'm still not convinced

Facebook paid $1 billion for Instagram in part because of the opportunity cost Facebook faced by not getting the page views from engagement stemming from photos posted to Instagram that wouldn't have been seen on Facebook. When you consider how much engagement Facebook could have potentially missed out on, $1 billion doesn't seem so irrational, even though Instagram had to yet to monetize the service themselves.

I dont really see what Facebook overpaying for Instagram has to do with there being a bubble or not. I'm also not sure why you think that THX and ILM should be a part of Lucasfilm's valuation considering the fact that lucasfilm has not owned either company for a decade.

ILM is still LucasFilm. Disney bought the entire holding. Corrected on THX, thank you. :)

I also stand corrected, I thought the entirety of ILM became Pixar but it was just the CG division.

There will always be outliers; extrapolating macro trends from anecdotes is not very informative.

The only reason Instagram sold for $1B was because Facebook was willing to pay that price (especially in stock).

One was purchased to prop up an IPO price, the other for long term revenue. In both cases, their purchase was appropriate.

To be accurate, final purchase price for Instagram was $710 million.

How many people, right now, are

A) using Instagram?

B) watching a Lucasarts film?

Edit: The point is value isn't always generated from a price tag. User timeshare has it's own value for advertising companies.

How many people this year will pay to use Instagram?

How many people this year will pay to see or use something that Lucasarts made?

How many people this year will pay to use Facebook?

Just because it doesn't have a price tag doesn't mean it can't generate revenue, silly.

Not a relevant comparison... At all

I'm tired self-evident "bubble" statements. btw, Instagram recently hit 100 million users.

My concept of "bubble" stems from over-valued acquisitions, based on everything but revenue. I'm not saying that "Instagram is the bubble". All I tried to do was to put things in perspective, considering a new and upcoming brand versus a very established (and profitable) one.

PS: I did know about Instagram hitting 100 million users… I actually chose to put the number of users at the time of acquisition, as whoever had bought them was bound to increase their user numbers exponentially (if nothing else, for the sheer publicity such an acquisition provides).

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