What I was referring to with the greater fool theory is that the investors who put in ~$50 million, for a valuation of ~$500 million thought they'd find a greater fool to sell the company to, to make money off of (since I don't think Instagram could actually earn that money from its userbase), and that greater fool turned out to be Facebook.

In turn, Facebook, implicitly assumes that the greater fool from whom they will make money from this deal is the public who will buy shares when Facebook goes IPO. Because with $1 billion in profits for 2011, if the market values them at $100 billion, that will be a P/E ratio of 100. Even if they double their profit in 2012, their P/E ratio will still be 50, which is astronomical.

When people put huge money into things that have low value from a business fundamentals point of view, just because they think they can sell later on to someone else to make a huge profit, I think that's the very definition of a bubble.

FaceBook is only worth 100b on paper. It's not worth close to that. The reason this is absolutely a bubble is because you have one paper tiger buying another paper tiger with virtual paper.

This is no different than the real estate cycle in L.A. or South Florida a few years ago, when people would buy and sell condos based on market potential multiple times before the condo was even finished. It all works until someone down the line tries to cash in. It will work for FaceBook and Goldman Sachs, but a whole lot of consumer investors are going to get AOL'd in the long run.