{"id":9719,"date":"2012-04-13T11:18:54","date_gmt":"2012-04-13T09:18:54","guid":{"rendered":"http:\/\/businesstech.co.za\/news\/?p=9719"},"modified":"2012-04-13T15:24:03","modified_gmt":"2012-04-13T13:24:03","slug":"is-facebook-inflating-the-social-media-bubble","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/internet\/9719\/is-facebook-inflating-the-social-media-bubble\/","title":{"rendered":"Is Facebook inflating the social media bubble?"},"content":{"rendered":"

Facebook’s<\/a> acquisition of photo-sharing social media network, Instagram<\/a> for as much as R7.9 billion, has led to speculation that social media is heading into new ‘bubble’ territory.<\/p>\n

Not so, suggests World Wide Worx’s<\/a> MD, Arthur Goldstuck<\/a>, who believes that Facebook’s purchase is a defensive move ahead of its imminent IPO.<\/p>\n

“The Instagram purchase is more a factor of its stratospheric growth at a time when Facebook is prpeparing for a listing, than of a bubble as such,” said Goldstuck.<\/p>\n

“It is a case of Facebook defending its position as the world’s leading photo-sharing environment, and of making an obvious acquisition of the fastest growing player in this arena, rather than of Instagram in its own right suddenly having this high value.”<\/p>\n

Instagram, prior to being bought up by Facebook, was valued around $500 million (R4 billion) – a valuation achieved after only 2 years. The photo sharing application was developed for a relatively small $500 000 (R4 million) in 2010.<\/p>\n

The Facebook offer price is reported to have netted Instagram CEO, Kevin Systrom<\/a> – with a 40% stake in the company – around $400 million (R3.1 billion), or 80% of the company’s reported value.<\/p>\n

“Time is tight for Facebook, prior to its IPO, and they obviously made an offer that couldn’t be refused, taking advantage of the current high value of Facebook shares.”<\/p>\n

The indicator<\/strong><\/p>\n

To feel out the case of a tech acquisitions bubble, one needs only look at the once-‘darling’ Groupon<\/a>, which was approached with similar take-over offers at its peak.<\/p>\n

Groupon is a deal-of-the-day website that offers discount ‘coupons’ and gift certificates from localised companies. It was started in 2008 with a $1 million (R7.9 million) capital backing, shooting to a reported value of $1.35 billion (R10.6 billion) in 2010.<\/p>\n

“Groupon’s biggest mistake may well have been not accepting a similar offer-that-couldn’t-be-refused from Google<\/a> and believing its own hype about how much it was worth,” said Goldstuck.<\/p>\n

Before listing with its own IPO, Groupon was a hot property online, reportedly being approached by Yahoo! with an acquisition offer of $3 billion (R23.7 billion), and also by Google, in an offer for $6 billion (R47.4 billion) – both of which were rejected by the company.<\/p>\n

“Although it has a market cap of above $8 billion (R63.3 billion), versus that $6 billion\u00a0(R47.4 billion) offer, it is unlikely they will be able to extract that value from the business.”<\/p>\n

“The market has already punished Groupon, and its share price is down to a low of $13 (R102) from a high of $31 (R245). That looks like fairly sane market response to a business that had previously been over-hyped.”<\/p>\n

“If we were in the midst of a bubble for group buying sites, that share price would be closer to its highs,” Goldstuck concluded.<\/p>\n

The bubble burst<\/strong><\/p>\n

Social media companies have a history of riding the rise of bubble trends – being rated at extremely high values and subsequrntly meeting a sharp decline when that bubble bursts.<\/p>\n

The fickle nature of these bubble trends can be seen with companies like MySpace<\/a> which, in its prime, was valued at $12 billion (R95 billion) when Rupert Murdoch’s News Corp had attempted to merge the social network with Yahoo! in 2007.<\/p>\n

However, once the bubble burst, and Facebook took the lead as the social network of choice, MySpace hit a sharp decline in revenue and memberships – until News Corp sold the company to Specific Media for a reported $35 million (R277 million) in 2011.<\/p>\n

Related article<\/strong><\/p>\n

Targeting the mobile market<\/strong><\/a><\/p>\n

Facebook to pay $1bn for Instagram<\/a><\/strong><\/p>\n

Social media is connecting the world<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Facebook’s acquisition of photo-sharing social media network, Instagram for as much as R7.9 billion, has led to speculation that social media is heading into new ‘bubble’ territory.<\/p>\n","protected":false},"author":14,"featured_media":9587,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9882],"tags":[843,45,153,26,2282,2343,1426,2344,2345,607],"class_list":["post-9719","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-internet","tag-arthur-goldstuck","tag-facebook","tag-groupon","tag-headline","tag-instagram","tag-myspace","tag-news-corp","tag-ruper-murdoch","tag-specific-media","tag-world-wide-worx"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/9719","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=9719"}],"version-history":[{"count":14,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/9719\/revisions"}],"predecessor-version":[{"id":9747,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/9719\/revisions\/9747"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/9587"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=9719"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=9719"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=9719"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}