If Instagram could do it all over again, maybe it would've blinked.
The leading photo-sharing app developer accepted a roughly $1 billion buyout bid from Facebook (FB) earlier this year, shortly before the world's largest social networking website operator went public.
It seemed like a great deal at the time, but Instagram's no longer a $1 billion company. As The New York Times' DealBook column points out, just 30% of the purchase was made in cash. Instagram's owners accepted Facebook stock for the balance of the deal.
Instagram accepted roughly 23 million shares valued at $30 apiece to go along with $300 million in cash to complete the $1 billion transaction.
Anyone pulling a stock chart on Mark Zuckerberg's social site knows that it's been a losing proposition.
This Paycheck Is Missing Some Zeroes
When Facebook went public at $38 in May it seemed like a shrewd move on Instagram's part to go for a largely stock-based transaction. The cash and stock value of the deal rose to nearly $1.2 billion.
However, as Facebook's stock has gone on to lose about half of its value in three months, Instagram has had the same sinking feeling.
Friday's close of $19.05 means that the value of the Instagram deal is now down to $738 million.
There's No Use Crying Over Spilt Millions
DealBook argues that Instagram could've protected itself by going with a floating share exchange ratio or a stock collar to provide some more stability.
That's true. Some mergers do include measures where the actual number of shares being distributed rises or falls based on a stock's moves. However, these maneuvers cut both ways. They protect the seller if the stock tanks after the deal closes, but they also protect the buyer if the stock climbs higher by lowering the number of shares required.
Life was easy when everyone was playing Guitar Hero. Facebook has reinvented the way game-hungry masses spend their time, logging into Facebook to tend to virtual farms, mafia campaigns, or item-finding experiences.
It's not a surprise that the traditional video game industry has been struggling for three years. Market leader Activision Blizzard doesn't even make Guitar Hero games anymore, and its World of Warcraft player count has been steadily declining over the past year. Call of Duty is still a growing franchise, but that can't last forever.
As traditional game companies are struggling, Zynga (ZNGA) -- which accounts for 18% of Facebook's revenue -- is thriving.
Diehard gamers are still firing up their consoles and are toting around their portable gaming systems. The problem is that mainstream gamers -- the casual players who didn't live and die by every franchise's latest release -- have moved on to casual and social diversions. They're free or nearly free, and the viral magic of Facebook connecting friends as players made it possible.
Few will suggest that Google is in trouble. The world's most valuable Internet company is worth more than twice the market cap that Facebook is commanding. However, Big G is nervous.
Google's bread and butter business remains paid search, and what happens when folks stop trekking over to Google.com whenever they need to launch a query? If asking friends or simply relying on Facebook's own search box is easier, won't that hurt Google?
There are other ways that Facebook is having an impact on Google.
Google's YouTube may be the world's hottest video-sharing website with more than 800 million monthly visitors, but Facebook also allows its more than 900 million unique monthly users to upload clips on its site to share. We also have Gmail, Google's popular email platform. A lot of people are just sending private messages through Facebook that would normally go through traditional email.
Subscribers turn to Angie's List for unbiased reviews. Members pay dues to have access to customer reviews for local service providers. Need a handyman who can fix a pocket door? Is your clogged drain not clearing with your plunger? Who can tutor you daughter for her upcoming college entrance exam?
Angie's List prides itself on the vetted and unbiased opinions that can be found on its site. Well, as fate would have it, these are the same things that can be effectively tackled for free by posting a request as a status update on Facebook.
4. American Greetings (AM)
Remember when shelling out a few bucks for a greeting card was the most cost-effective way to commemorate a special occasion?
Well, thanks to Facebook, offering up birthday wishes or congratulatory acknowledgements is simply a Facebook posting away. Is it cold? Is it impersonal? It doesn't matter. It works. American Greetings has done its part to beef up its digital presence, but analysts still see earnings growth going the wrong way here this fiscal year.
Facebook has also changed the way we consume photographs. We're no longer printing them out, and that's bad news for Shutterfly. The company turns digital snapshots into prints, photo books, and other customized merchandise.
Facebook is a hotbed for the sharing of photos, and that is something that has intensified since its recent acquisition of Instagram.
Shutterfly has managed to grow nicely even as Facebook ascends, but the perception that Facebook is turning Shutterfly and its peers into an elephant's graveyard exists.
All five of these companies may have cheered Facebook's plunge below its $38 IPO price on Monday, but their business models still have to reckon with the beast that the undisputed champ among social networks has become.
It's easy to paint Instagram as a victim here, but if the deal's stock ratio were adjustable, and if Facebook's stock were trading about $30, then critics would argue that Instagram left money on the table.
Putting Most of Its Eggs in the Facebook Basket
Skeptics argued earlier this year that Facebook was overpaying for Instagram. The money-losing developer has yet to report any meaningful revenue. It's a free application for folks to take, edit, and share digital snapshots. Monetization efforts would come later.
However, it's Instagram's growth that's been turning heads.
The app had just a million users by the end of 2010. As of April of this year it was up to 30 million.
Facebook noticed. Instagram users were loading up the social networking website with digital pictures, bypassing Facebook's own photo uploading tool. Nostalgic users would easily doctor up fresh pictures, giving them a retro finish.
Since so much of Instagram's success was tied to Facebook's growth, perhaps it was fitting that the shutterbug app developer's co-founders accepted a deal that would be paid mostly in Facebook stock. If the social networking website's fortunes would sag, one would argue that Instagram's value would also likely take a hit.
Overexposure Ruins Any Family Portrait
The problem now isn't that Facebook isn't growing. The dot-com rookie posted blowout quarterly results this summer. Revenue climbed 32% to $1.18 billion during the quarter, and Facebook is very profitable. There are now 955 million active Facebook accounts.
However, in retrospect, Facebook should've never gone public as a $104 billion company. And Instagram should've never agreed to a stock deal that valued Facebook so dearly.
When someone takes a bad digital picture, a second snapshot is just a click away. Unfortunately when it comes to this particular merger there's no such thing as a do over.
Facebook Photo Bombs Instagram
First, we should note that Wixted is plenty successful. She joined Zynga as an early employee and stayed through its IPO. But she probably could have made even MORE millions if she had left for Instagram when it offered in 2010.
Wixted writes about her missed opportunity on Quora:
"In June 2010, Mike and Kevin were just getting started on their mobile web app which they called Burbn. I was a lead engineer on the mobile team at Zynga at the time. Mike contacted me about coming on board as their first hire. We met, and they showed me their ideas for where they were thinking of heading with Burbn: a photo-sharing mobile app.
... It was a great team fit, but I just couldn't get excited about a photo-sharing app. I felt, and I still feel, that I need to be working on more complicated things, so I've stayed in the games space...Of course, I'm kicking myself now. Hindsight is 20/20 and all."
He says he wasn't even interested in the offer because he was loyal to his own team.
"I don't regret a thing," he says on Quora. "You realize a lot of things about yourself (how content you are with your current situation, how hard you're working, where you want to be in the next few years, etc) when things like this happen."
Sahil Lavingia has a buzzy startup now that's raised $8 million from Silicon Valley investors, Gumroad. To start Gumroad, Lavingia had to walk away from his position as the #2 employee at Pinterest.
His timing could have been better. Lavingia left Pinterest about one month shy of his 1 year mark at the company. That means none of his stock options vested.
Hopefully he'll make it back on Gumroad. Meanwhile, Pinterest's valuation is skyrocketing.
Gumroad only has 3 full-time employees. Last month it only had one, founder Sahil Lavingia (second from left).
Robert Cezar Matei has missed a few golden opportunities. First he turned down an opportunity to work for Facebook and decided to stay at Stanford instead. Then he failed to be impressed by Jack Dorsey's Square and turned down an early opportunity there.
But his most costly decision may have been turning down Instagram. He was offered a job as Instagram's 2nd engineer and the founders had only made one other offer prior.
"When I was deciding where to work next, they made me build a follow recommendation algorithm using their API. I guess they liked it," he writes. "We talked about their vision. We had sake in the Tenderloin at 1 in the morning. Kevin crafted a lovely letter, peppered with shared experiences and pictures, as he did for every offer. I was touched."
Instead, Matei went to Quora. He was more passionate about its vision and the position.
"If you're in the Valley for any amount of time, you'll have missed opportunities," writes Matei. "Whatever. Opportunities were rarely as close as they might seem in hindsight. There are a million ways my life could have turned out worse, too."
When Joe Green was at Harvard, he was roommates with Mark Zuckerberg. He and Zuckerberg created Face Mash together, which got the pair in trouble with the university.
Green's father, a professor at UCLA, cautioned him not to work with Zuckerberg anymore. So when Zuckerberg asked him to head up Facebook's business operations, he declined. The position would have granted him about 3 or 4 percent of the company, Green estimates, which would have made him worth about $3 billion.
He still scored some Facebook stock for being an advisor to the company and he later cofounded Causes and NationBuilder, companies other early Facebookers backed.
He tells Bloomberg BusinessWeek, “Every once in a while you can have a moment of bitterness but in general I've been so blessed with what I have been able to do."
When Facebook was taking off and Zuckerberg rented a house in Palo Alto for the summer, he invited Harvard classmate Joe Jackson to come with him.
Instead, Jackson went to New York for a J.P. Morgan Chase internship.
“I completely missed the boat," he tells Bloomberg BusinessWeek of his missed Facebook stock options. "I wasn’t thinking about it as ‘This could be my chance to be rich and famous.' It was more like, ‘This is going to Palo Alto and living in a house with a bunch of kids and programming for a startup that may not go anywhere."
Like Wixted, we should note that Inkenbrandt will be just fine. He chose Pinterest over Instagram, which should yield a decent multi-million payout of its own.
But with Instagram, he could have been a millionaire already. Inkenbrandt writes on Quora:
"I chose to work at Pinterest over Instagram. It was not an easy decision by any means because I really like Instagram and the guys who built it. I'll keep my reasons for choosing Pinterest to myself, but I will say that I don't regret the decision."
Kevin Systrom turned down Facebook and later sold his company, Instagram, to Zuckerberg for $1 billion.
Mike Abbott became Twitter's head of engineering
Steve Chen worked for Facebook for a few months then founded YouTube, which he sold to Google for $1.6 billion.
Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Facebook. Motley Fool newsletter services have recommended buying shares of Facebook.