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Facebook's Acquisition of Instagram

   

Added on  2020-04-15

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Running head: FINANCEFinanceUniversity NameStudent NameAuthors’ Note
Facebook's Acquisition of Instagram_1

2FINANCEFive Year anniversary of Face book’s acquisition of Instagram Changes in policy Facebook essentially bought nearly 35 million users of Instagram for approximately $1billion that is equal to over $28 for every user. Analysis of the acquisition reveals the fact thatduring the time of acquisition, the valuation of facebook stood at $90 billion. However, thepresent valuation of facebook stands at $306.4 billion that is roughly $179 per share.Essentially, in this case, valuation is necessarily the price that a specific party pays foranother party, or in other words it is the value that a specific side will sacrifice in order tomake the transaction work (Fracassi, 2016). As such, valuation can be considered as acombination of flow of cash as well as the time value of money. In this case, the seller firmtends to value the corporation at a price as high as possible, whilst the purchaser tends to getthe lowest price possible. Amidst several criticisms as regards the acquisitions of Instagram, facebook had differentideas regarding the worth of the company. Many questioned the decision of acquiringInstagram as many people were of the view that disbursing $1 billion for a corporation thatgenerated no revenue was not feasible. Basically, management of the firm facebookconsidered the future prospects of business, solid growth base, risk of the target firm and costof capital. In a bid to understand whether a specific deal is worthwhile it is important for theacquiring firm to comprehend the price-earnings ratio as P/E for all stocks falling within theidentical industry can provide acquiring firm proper guidance regarding multiple of target P/E(Grinblatt & Titman, 2016). Again, the acquiring firm also need to consider enterprise valueto sales value ratio as this can help in understanding the value as well as amount of debt of acorporation that necessarily needs to be returned back at certain point of time. The company
Facebook's Acquisition of Instagram_2

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