The valuation is based on what I would call "defensive valuation". Instagram was bought for $1 billion, not because it had any billion dollar revenue generatin

The valuation is based on what I would call "defensive valuation". Instagram was bought for $1 billion, not because it had any billion dollar revenue generating potential. It, however, had the potential to erode Facebook. So Facebook buys it out as a defensive move. Snapchat, given its huge user base, could potentially threaten Facebook, so Facebook would be forced to acquire them, purely as a defensive strategy. Think of it as the cost of defending their empire.