Instagram’s 400 million users show Facebook got a bargain when it bought the company

Instagram announced this week that it has 400 million users. The announcement underscores just how good a deal Mark Zuckerberg got three years ago when Facebook bought the company for $1 billion.

At the time, Instagram only had about a dozen employees. People marveled that Facebook would pay tens of millions of dollars per employee for a company that had yet to bring in any money. The move even got a mocking segment from Jon Stewart:

But it’s now clear that Zuckerberg knew exactly what he was doing. Critics mocked Instagram’s gimmicky features, like filters that make pictures look old-timey. But Zuckerberg recognized that the platform had something more basic going for it: a user base that numbered 30 million people and was growing rapidly.

We don’t know how much Instagram would be worth today if it were a separate company. But we do know the market values Twitter at around $18 billion — and Instagram is both bigger than Twitter (which has 316 million users) and growing more quickly. Even if you think Twitter is overvalued, it’s clear that Instagram is worth many times what Facebook paid for it just three years ago.