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Instagram's Rise Shows Facebook's M&A Strategy Works

Stocks in this article: FB

NEW YORK (TheStreet) -- As the world pores over Facebook's (FB) pending acquisition of virtual reality company Oculus, many are quick to shoot the deal down. Yet, following the acquisition of Instagram, perhaps Facebook deserves some breathing room and a little bit of credit.

Following Facebook CEO Mark Zuckerberg's comment about Instagram surpassing 200 million members, Instagram officially announced the number in a blog post. The photo-centric social network has gained an additional 50 million members in just the past six months, according to the post.

"To the 50 million of you who've joined in the last six months, welcome. We're so glad you're here. And from our team to all 200 million of you, thank you for making Instagram great. We can't wait to see what you'll create next," the company said on the post.

Not only has the company topped 200 million members, more than 20 billion photos have been shared to date, a number the company prides itself on.

Instagram was seen initially as a defensive move. Acquiring the popular app, which debuted first on Apple (AAPL) devices, then later came to Google (GOOG) Android and Microsoft's (MSFT) Windows Phone, was lauded as the right move. On the conference call to discuss the Oculus deal, Zuckerberg noted Facebook was hoping Instagram, which had 20 million members at the time of the transaction, would eventually get to 100 million, but it's far surpassed their expectations.

"Like [Facebook CFO] David [Ebersman] said, when our thesis when we agreed to acquire Instagram is that once day we thought it could reach 100 million people or more," Zuckerberg said on the call. And within the first two years of working with them, we're already at 200 million. So that I think - that was an initial test case for us because before that we had no experience with having a company join us and continue to operate independently. And the overwhelming success in the partnership that we've been able to forge with Kevin at Instagram and showing how that works has really been a great example for how we want to do things going forward."

Instagram has just started to make money for Facebook, recently rolling out advertising, which users have responded well to. On Facebook's fourth-quarter earnings call, Ebersman noted Facebook was slowly ramping up Instagram ads, but that the results were positive. "I would say we're just really early with Instagram," Ebersman said on the call. "So it's too early to talk about where we're going to be going. We're still trying to learn what the right way to approach that product is, and we're going to move slowly, because we think that's the right thing to do for Instagram."

Above is the first ad on Instagram, from designer Michael Kors.

Judging by Zuckerberg's comments about Instagram being well ahead of where the Facebook team thought it would be, and the potential for WhatsApp to reach 1 billion users (it currently has around 450 million users), then perhaps Zuckerberg and his team know what they're doing with their acquisition strategy, despite the naysayers.

--Written by Chris Ciaccia in New York

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