Facebook Snaps Up Instagram In $1bn Deal

RELATED QUOTES

SymbolPriceChange
YHOO35.55-0.5900
AOL42.38-0.97
MSFT39.66-0.33

Facebook is to pay $1bn (about £0.6bn) in cash and stock for photo-sharing application Instagram, making its largest-ever acquisition months before it is expected to go public.

The Instagram app, which allows users to add filters and effects to pictures taken on their smartphones, has gained about 30 million users since it first launched in January 2011.

But despite a loyal and active following, the start-up, with roughly a dozen employees based in San Francisco, lacks any significant revenue sources.

Instagram reportedly closed a $50m (£31m) funding round last week from investors including Sequoia Capital that valued the company at $500m (£314m), according to technology blog AllThingsD.com.

Facebook, which is expected to launch a $5bn (about £3bn) initial public offering in May, will acquire Instagram's entire team.

"This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users," Facebook CEO Mark Zuckerberg said in a blog post.

"We don't plan on doing many more of these, if any at all."

The deal, a closely kept secret at the tiny start-up, is expected to close this quarter.

Meanwhile, AOL (NYSE: AOL - news) , one of the original internet pioneers, is set to make $1bn from the sale of over 800 patents to Microsoft (NasdaqGS: MSFT - news) .

Investors have been surprised by the size of the deal which has sent AOL shares up 43%.

"It's a great deal for AOL," said Clayton Moran, an analyst with Benchmark. 

"Investors had anticipated little to no value for the portfolio - a few hundred million at the most."

AOL said a "significant portion" of the proceeds would be passed on to shareholders.

It will continue to hold more than 300 patents related to key strategic areas for the company, including advertising, search, and social media, and will receive a licence to the patents being sold to Microsoft.

As part of the deal, Microsoft will be granted a non-exclusive licence to the patents AOL retains.

AOL and Microsoft are no strangers when it comes to partnerships. 

Last year the two companies, along with Yahoo Inc (NasdaqGS: YHOO - news) , formed an advertising alliance that allows each of the partners to sell each other's unsold premium advertising inventory.