The FTC decided to look into the deal after Facebook announced it was to pay $1bn – the most it has ever paid to buy a business - for the mobile photo application firm back in April. A £1bn valuation for a firm yet to make a cent in profit? That would get anyone’s spider senses tingling.
Four months later, however, and Facebook has been cleared of any suggestion of wrongdoing. But the investigation has cost Instagram dear. Rather than receiving a cool billion in cash, Facebook is now handing over just $300m in real money, with the rest in stock – roughly 23 million shares. This values the deal at $747.1 million, based on the $19.44 closing price of Facebook's shares on Wednesday.
And Instagram founders Kevin Systrom and Mike Krieger have another reason to be unhappy about the reworked terms. Since Facebook’s IPO, shares in the world’s largest social network have declined in value by around 50%. And there’s no guarantee they won’t fall yet further. Between slowing revenue growth, issues with Facebook mobile, and the sheer volumes of shares sloshing around the market after the ban on insider sell-off was lifted, Facebook is looking decidedly peaky.
Zuckerberg could be relying on the Instagram deal to turn Facebook’s fortunes around, however. The photo sharing app, which boasts around 80 million users, could help to soup up Facebook’s mobile offering. And at the very least, Facebook has prevented the company from falling into the hands of rivals Twitter, Google or Yahoo!.
But there is one more hurdle left for Facebook to leap: the ‘fairness hearing’ at the Department of Corporations in San Francisco. There, officials will decide on whether the transference of stock can go ahead. Facebook has been doing everything in its power to limit the general public's access to the hearing. Further evidence that there is a lot riding on this deal going ahead, more than we understand at present.
It’s interesting that Instagram seems to have taken the renewed terms on the chin, despite the fact that it is losing out on up to a third of the original billion. Is it stuck between the devil and the big blue social network? Or perhaps it's simply that this remains a pretty sweet deal for a business that is yet to celebrate its second birthday...