Why did Facebook value Instagram at $1 billion given it was valued at $20 million fourteen months ago?

[cool kunal]

What people do on Facebook, share images. Photos are being shared on mobile in a big way. Without any doubt Instagram is the clear leader in mobile photos. Instagram was able to add 1M users in the first day of availability on Android. Facebook needed a growth engine to show investors after they go public. Instagram is that growth engine for them, and it is worth much more than $1B to Facebook and its investors.
Image sharing is getting popular in such a big way that it resulted in making Pinterest the 3rd largest social media and was able to get 104 million traffic in the month of March. 97%of them were women and what people do on Pinterest again all about share images. So in the cut throat competition in this Digital world where each and every user matters. Facebook was pretty smart to buy the Instagram for $1 Billion price which had 33 Million users. So indirectly Facebook got those 33 million users buy paying them $30 to each user ($30/user X 33M users = $1B).
Whereas Facebook with 800 million users is worth $80 Billion. So for Facebook each user is worth $100. If Facebook can monetize its users in a way that justifies $100/user, than paying $30 per user for an acquisition is a great deal. So it does not have made any sense for Microsoft or Twitter to buy Instagram that too for $1 Billion . It depends on their monetization model, and what they plan to do with the acquisition in the future. This is why Instagram is worth $1B to Facebook. So after the acquisition Facebook value has increased to $81 Billion from $80 Billion.
So no one would say that this was a wrong decision or why Facebook bought Instagram for $1 Billion. People would have said or it may have too late to think over, if Facebook wouldn’t have bought it.

[Yikes]

What are you babbling on about? If you don't know the answer don't write a book!

Facebook threw their money out because they are in a higher tax bracket and wanted a losing proposition to lower their tax bracket!

[thankfulroute334]

a big reason for why facebook wanted instagram was for their technology which they could learn and maybe even integrate it into facebook. Regarding the reason in the price jump, the only feasible reason is probably because of instagrams exponential growth in popularity.