
Not a Bubble... At All (Instagram vs. Lucasfilm) - levifig
http://stereothinking.com/2012/10/not-a-bubble/
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reso
Comparing the acquisitions of two companies in different industries
fallaciously assumes there is an objective measure of the "value" of a
company.

Acquisition value != societal value.

Instagram wasn't worth $1 billion to society, it was worth $1 billion to
Facebook, which works out to $30/user. Facebook can reliably turn users into
gold, therefore it was a reasonable purchase for them.

~~~
notatoad
Isn't that exactly the author's point: acquisition value of trendy tech
companies is wildly disparate from societal value, and that disparity is not
healthy or sustainable.

~~~
bduerst
They're missing the point, and reso hit the nail on the head.

It's analagous to someone saying, "Academic researchers should be paid more
because of what they're progressing mankind". But they're typically not paid
more than those working in a for-profit organization who is also doing
research.

Instagram was worth that sum to Facebook, just as Lucasarts is worth that sum
to Disney. Neither are worth that much for society, though Lucasarts happen to
contribute more to society over it's 40 years of existence.

~~~
001sky
no, this argument is weak. all kinds of implicit assumptions about markets and
valuations. markets can be massively innefficient when dimensionalized by (for
example) any other variable than information. eg. volatility. but vol has
massive market value itself (see: black scholes). subject to massive
externality (see: political economy). Regardless, asset bubbles are
economically and politically problematic.

~~~
bduerst
It sounds like you just pulled a couple terms out of your behavioral finance
textbook and decided to call it a day before substantiating any of your
claims.

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001sky
not quite.

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bduerst
Which part?

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001sky
Well, you wouldn't seem to be able to get through the first point. Which is an
analytic critique of emh, not a behavioral one. So you either don't understand
this or are mixing your metaphors. Also you argue: I don't understand X,
therefore...PQR follows. Which is not solid ground, generally, to make
sweeping statements.

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eridius
This is a bit of an odd comparison. I don't see LucasFilm and Instagram as
being even remotely similar. For example, the reason why Instagram was so
valuable is because it was poised to challenge the #1 reason why people use
Facebook. If a Facebook competitor had bought Instagram then they could have
potentially toppled Facebook's position atop the social networking heap. This
single fact made Instagram incredibly valuable. And it's not something that
can be compared to the valuation for LucasFilm.

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ChuckMcM
Still mad? Seriously? Wow.

Sometimes I compare laptops to milling machines, its fun since a used milling
machine that can make a new crankshaft for a 77 GTO goes for less than a high
end Macbook Retina. Money enables different things (making crankshafts for
example) comparing the enablers is fun but not really something to get bent
out of shape about.

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wtvanhest
I'm not exactly sure what the OP's point is, but the price/employee ratios do
not make any sense outside of acquihires.

Take US Air for example, they have 30k employees and are worth 2B. That ratio
is meaningles. It is even more meaningless when one programmer can eliminate
100s of jobs using automation.

I'm sure it is a useful metric for some analysis, but it doesn't seem to be in
the case of instagram which seemed much more like a play to remove a question
mark from institutional investors minds prior to an IPO.

~~~
levifig
Agree. That's why we're calling it a "bubble": the sheer disproportion between
revenue, employee number and brand value, and price tag. I'm merely putting
things in perspective, not writing a "market analysis". :)

~~~
wtvanhest
My point is that those metrics are not always valuable to rely on. Unlike hard
science, you don't have to prove their significance through statistical
analysis, but you should be able to state why market cap/employee is a
reasonable valuation tool.

IMO, Facebook would not have paid less for 15 employees or more for 100
employees so it seems like a poor metric.

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confluence
FACEBOOK

Web app for taking and sharing pictures taken with your digital camera over
ADSL broadband to brag/talk to your friends about.

2 years of existence

1 product

24 employees

30M+ users

$0 revenue

What exactly is your point? Instagram had insane adoption and was eroding
Facebook's control over both pictures and mobile - the two biggest drivers of
future growth over the next decade in both users and ad dollars.

Facebook bought them with overvalued stock (before IPO) so it was ~$500
million which is the same as what the VCs valued it at a month before it was
acquired.

It was a good acquisition - basically a hedge against market obsolescence,
easy injection of new IP and easy injection of mobile users.

Excite could've bought Google for ~$1 million back in the late 90s. Yahoo!
could've had Facebook for ~$1 billion if the pressure on Zuckerberg was
higher.

They choose not to buy that option. They don't exist anymore.

~~~
brianchu
Minor semantic issue, but for the record Yahoo does exist.

~~~
confluence
Does it really? Or was I in fact trying to make a point :D

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jonny_eh
One datapoint (the Instagram purchase) does not mean the industry is in
another bubble.

Instagram was actually valuable to people at least, compared to the startups
getting funding in the 90s. The funding of Color on the other hand was a bit
reminiscent of those days though.

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hiddenstage
Instagram was a very real competitor to Facebook. They also have practically
zero expenses. It took only 1% of Facebook's market cap (at the time) to
acquire them.

Lucasfilm is in a very crowded space. They have a ton of expenses which
results in loses a good percentage of the time. Their best days were probably
behind them (especially since they chose to stop making new Star Wars movies).

Basically, this is comparing two completely different businesses in completely
different markets. I think both were good deals for the acquirers.

I'll leave with this: I think selling Band Aids is a better business than
Yahoo - but you're crazy if you think Yahoo doesn't have an insane higher
multiple of potential.

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diego
Regardless of whether we are in a bubble or not, it's embarrassing to see how
easily someone can get a blatantly fallacious comparison on the front page of
Hacker News just because of its emotional resonance with some users.

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lojack
Lucasfilm:

$7 billion gross over the course of 41 years with 1,001-5,000 employees
(<http://www.linkedin.com/company/lucasfilm>).

Instagram:

$0 over 2 years with 13 employees.

That $7 billion could easily turn out to be negative profit with that number
of employees. Looking at the movies Lucasfilms puts out, 90% of their profits
comes from Star Wars and Indiana Jones. Its going to be very hard for them to
continue sequels to these movies. Then you look at the growth of the market.

I understand Instagram doesn't have profits... but I'm still not convinced

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traughber
Facebook paid $1 billion for Instagram in part because of the opportunity cost
Facebook faced by not getting the page views from engagement stemming from
photos posted to Instagram that wouldn't have been seen on Facebook. When you
consider how much engagement Facebook could have potentially missed out on, $1
billion doesn't seem so irrational, even though Instagram had to yet to
monetize the service themselves.

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gdg92989
I dont really see what Facebook overpaying for Instagram has to do with there
being a bubble or not. I'm also not sure why you think that THX and ILM should
be a part of Lucasfilm's valuation considering the fact that lucasfilm has not
owned either company for a decade.

~~~
levifig
ILM is still LucasFilm. Disney bought the entire holding. Corrected on THX,
thank you. :)

~~~
gdg92989
I also stand corrected, I thought the entirety of ILM became Pixar but it was
just the CG division.

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smilliken
There will always be outliers; extrapolating macro trends from anecdotes is
not very informative.

The only reason Instagram sold for $1B was because Facebook was willing to pay
that price (especially in stock).

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stevewilhelm
One was purchased to prop up an IPO price, the other for long term revenue. In
both cases, their purchase was appropriate.

To be accurate, final purchase price for Instagram was $710 million.

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bduerst
How many people, _right now_ , are

A) using Instagram?

B) watching a Lucasarts film?

Edit: The point is value isn't always generated from a price tag. User
timeshare has it's own value for advertising companies.

~~~
outside1234
How many people this year will pay to use Instagram?

How many people this year will pay to see or use something that Lucasarts
made?

~~~
bduerst
How many people this year will pay to use Facebook?

Just because it doesn't have a price tag doesn't mean it can't generate
revenue, silly.

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justindocanto
Not a relevant comparison... At all

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interg12
I'm tired self-evident "bubble" statements. btw, Instagram recently hit 100
million users.

~~~
levifig
My concept of "bubble" stems from over-valued acquisitions, based on
everything but revenue. I'm not saying that "Instagram is the bubble". All I
tried to do was to put things in perspective, considering a new and upcoming
brand versus a very established (and profitable) one.

PS: I did know about Instagram hitting 100 million users… I actually chose to
put the number of users at the time of acquisition, as whoever had bought them
was bound to increase their user numbers exponentially (if nothing else, for
the sheer publicity such an acquisition provides).

