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“It’s hard to find a mathematics in which Instagram worth $1 billion in cash, but in pre-IPO stock, Facebook could stomach the hit.”

This statement might make sense if Facebook were cash strapped, but in fact Facebook has plenty of cash. By paying in pre-IPO stock that is likely to be worth a lot more in a few months, Facebook is probably getting a bad deal compared to Instagram investors.

It’s true that some people think Facebook is overvalued, but there are also analysts who believe Facebook is fairly valued (http://aswathdamodaran.blogspot.com/2012/02/ipo-of-decade-my...), and few are arguing it’s as overvalued as, say, Groupon was at IPO.

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