This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Kodak Doesn't Profit as Facebook Bets a Billion on Photo Sharing

Stocks in this article: SFLY AAPL AMZN GOOG

NEW YORK ( TheStreet) -- Facebook could have bought a photo sharing site on the cheap.

Instead, the social network flexed its pre-IPO financial muscle in a $1 billion acquisition of photo-sharing app Instagram.

The bargain photo sharing deal went to Shutterfly (SFLY), which on Wednesday said a $23.8 million bid it made in March for Kodak Gallery, the pioneering photo sharing service from the bankrupt camera inventor Eastman Kodak, was the winning bid. There were no competing offers.

The divergence in the valuation of Kodak Gallery, an established and profitable business, and Instagram, a two-year old company with no revenue, shows that in some Silicon Valley circles, growth potential trumps the financial performance of a proven business model.

While Kodak Gallery is a photo storage and album-creating site with 75 million users and iPhone and Android-apps that connect to Facebook, it was Instagram's smaller, but fast-growing mobile app-oriented social network that Mark Zuckerberg targeted in a deal that was roughly 42 times more expensive.

Amid Facebook's rise and Kodak's collapse, the lack of interest in Kodak Gallery may also signal just how specific M&A needs are as social networking giants and Silicon Valley titans work to follow consumers into mobile products and round out user experiences.

For Shutterfly, Kodak Gallery may bolster its photo sharing capabilities in an opportunistic move that wards off prospective competitors such as Apple (AAPL), and social networks threatening its profit margins.

In March, many analysts considered Shutterfly's bid for the customer accounts of Kodak Gallery to be a turning point for the company's profitability and pricing power, while thwarting the likes of Apple and Amazon (AMZN) from entering the photo sharing market. Although the move pushed the company's shares up over 16% to $31.36 on March 2, Facebook's April 9 deal for Instagram led to a drop in Shutterfly's stock as some investors saw an increasing challenge to its business and Kodak Gallery bid.

Instead, the lack of competition during Kodak Gallery's bankruptcy auction and an over 5% Tuesday rally in Shutterfly's shares to nearly $31 may speak volumes about what Silicon Valley leaders like Facebook are looking for in acquisitions. After announcing the $1 billion Instagram deal, reports indicated that Facebook CEO Mark Zuckerberg brokered the move in the matter of days after watching the network's quick adoption on Google's (GOOG) Android mobile platform, adding to its 15 million iPhone users.

When making his biggest acquisition ever, Zuckerberg said that Instagram and Facebook combined will, "offer the best experiences for sharing beautiful mobile photos with people based on your interests." It's those needs, over bread and butter revenue and profit that may be the big surprise in the diverging prices of Kodak Gallery and Instagram.

Nevertheless, Shutterfly isn't likely to fret over the valuation analysis of Facebook.

"Our acquisition of Kodak Gallery is a perfect example of the consolidation that we believe will play an important role in helping Shutterfly solidify our leadership position in the social expression and personal publishing category," said Shutterfly CEO Jeffrey Housenbold in a statement.

Kodak Gallery lets users store and share their digital images, customize photobooks, cards and albums -- meshing strongly with Shutterfly's photobook, cards and photo sharing businesses.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs