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.
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