With yesterday’s Facebook’s $1 billion acquisition of Instagram — a fast growing photo-sharing community with no revenues or business model to speak of — already there have been dozens of opinionated articles by all the smartest and richest VCs, investors and technofreaks in the world…here’s a good roundup
To me, this article by Om is the best of the bunch as he argues it was all about buying a fast-growing competitor that specialized in an area Facebook was weak in…and given Facebook’s tremendous valuation and popularity among investors, while they certainly paid a premium for Instagram, it’s not gonna keep them up at night given its 1% of their marketcap.
Within seconds of the breaking news, I searched around for other photo sharing websites that were publicly traded stocks worth buying and flipping as they’d likely spike given the news…unfortunately, all I found was Shutterfly, Inc. (SFLY) which was already a $1 billion company whose stock quickly tanked $1/share given that with Facebook’s help, Instagram’s service is gonna dwarf everyone else within a few years if not months…thus I considered shorting SFLY, but that lasted only a few minutes as it’s a guessing game about valuation now.
With no immediate trade on the table I began thinking about the consequences of this surprising acquisition (not-so-surprising to the amazing Gary V who actually predicted this very acquisition months ago); after all not since 2006 when Google acquired Youtube has such a small and recently founded startup made such headlines.
My gut: When the fastest growing internet company in the world spends big to acquire another fast growing social community, that’s the kind of industry where I want to be invested.
Sure, sure, I’ve made close to $3 million day trading penny stocks, and as my students and subscribers have learned, my trading strategy is good and easy money (given how the entire world ignores this niche due to sheer ignorance) as evidenced by my post yesterday where I showed how subscribers of my 4 have now profited over $4 million in just the past few years…but my trading strategy boils down to tons upon tons of small profits, like this $10,000 one and this $18,000 profit I had in one day the other day…and yes I make a few million/year teaching others how to trade penny stocks too, but the real FU money on the internet — I’m talking $50 million, $100 million, $200+ million — is made via acquisitions and IPOs…as Instagram’s newly $400 million minted CEO will tell you.
And that’s why I’m a proud investor in several startups with tremendous potential, as I posted HERE a few months back.
And while Seva Call’s main product is still in beta testing, Scambook, a social community for those who have been scammed/ripped off to post their complaints and get reimbursed, is growing like crazy in less than a year since its founding as you can see by their Compete.com chart:
…which is strikingly similar in chart pattern, growth and popularity rank to Instagram’s booming traffic chart:
Now Instagram’s traffic is mostly mobile so I doubt Compete.com accurately reflects it all, but you can clearly see the trend is the same between Instagram and Scambook and Scambook’s internal traffic figures show no signs of slowing growth like Compete.com shows.
In fact, thanks to uncovering tax scams:
…and warning consumers about credit card data breaches, March was a breakout month for Scambook with over 1 million visitors:
Now I’m not saying Scambook is worth $1 billion — yet — but it has the right growth trajectory, especially since it’s not even a year old yet and when compared to other more established review sites like TripAdivsor (current valuation $4.74 billion) and Yelp (current valuation $1.51 billion) which are much larger (for now), but whose growth has stalled:
The situation is very reminiscent to Instagram’s top 2 competitors, Shutterfly (current valuation $1 billion) and Flickr (valuation guessed to be between $2-4 billion)
Now obviously each of these companies have different business models, # of registered users and user worth, but Scambook has an interesting twist since every user is a potential client for law firms willing to pay, which makes every user far more valuable than a community of people who post restaurant reviews and photos of their vacations, pets and friends.
Long story short, I bring up all these charts to prove one thing:
-Established photo sharing community websites, like established review community websites, are worth billions of dollars, but smaller, faster growing upstarts are much more attractive investment and acquisition targets.
Don’t get me wrong, I would not be a short seller of YELP, TRIP or SFLY for the longterm as I think they will all increase in value as they monetize better and grow over time…but I’m much more excited about companies like Scambook and Instagram whose products are newer and, to a degree, simpler so their growth is faster and their potential greater.
And as evidenced by Instagram’s $1 billion valuation just days after they raised capital at a $500 million valuation, high premiums are paid for exponential growth.
So congrats to Instagram on the fast growth and acquisition and to Scambook on reaching 1 million monthly visitors. I look forward to writing a followup post in the coming months to see if they can keep up their exponential growth and to see how well Scambook does selling their ever increasing user data to law firms (which unlike other social networking websites IS in the best interests of the users since the law firms will help the users get reimbursed).