Thirteen Employees and a Billion Dollars
Facebook bought Instagram in April 2012 for roughly $1bn — the largest acquisition on record of a company with no revenue at that scale, and a deal that closed before its target had turned a cent.
01 / RecordThe Deal and What It Disclosed
Kevin Systrom and Mike Krieger launched Instagram in October 2010. By the time Facebook announced the acquisition on 9 April 2012, the app had around 30 million registered users and thirteen employees. It had raised about $7.5 million across a seed round in 2010 and a Series A in 2011, at a post-money valuation of roughly $25 million, before a further $50 million round in April 2012 valued it at $500 million, according to Crunchbase records. It had no revenue.
Facebook's announcement stated the deal would be roughly $1 billion in a combination of cash and stock. The stock component meant the final price fluctuated with Facebook's share price, and by the time the deal formally closed — on 6 September 2012 — regulatory filings submitted to the Securities and Exchange Commission placed the consideration at approximately $736 million, Facebook's stock having fallen between announcement and close. The cash portion was reported at around $300 million.
The Federal Trade Commission reviewed the acquisition and cleared it without conditions in August 2012 — a decision that would become the subject of sustained retrospective scrutiny. By 2019, Instagram's annual revenue was estimated by Bloomberg at approximately $20 billion, roughly a quarter of Facebook's total. The Facebook 2012 IPO, filed on the Nasdaq in May of the same year, listed the acquisition as a subsequent event in the prospectus, noting that the deal had not yet closed at the time of listing.
The acquisition established a template: a platform company paying a sum that appeared irrational against current financials but rational against projected network effects. At thirteen employees and zero dollars in revenue, Instagram was priced entirely on user growth and engagement data. Systrom remained as CEO of Instagram until 2018, when he and Krieger resigned. The FTC's 2020 antitrust complaint against Facebook later cited the Instagram acquisition as a central example of the company eliminating a competitive threat — the first time a completed and cleared merger had been re-examined in that framing at that scale.