The impressive revenue growth coming from Instagram is certainly no secret to investors of parent company Facebook, Inc. (Nasdaq: FB). However, analysts say investors may still not fully appreciate just how much of a gold mine Instagram could be for Facebook in the long term.
According to KeyBanc analyst Andy Hargreaves, Instagram could be Facebook’s primary growth source by 2020.
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“Core Facebook is clearly maturing, with ad load reaching a saturation point and pricing the last lever to pull, so we see Instagram driving an increasing portion of incremental advertising growth,” Hargreaves says.
KeyBanc estimates than 27 percent of Facebook’s revenue growth in 2018 will come directly from Instagram. That share will more than double to 58 percent of Facebook’s revenue growth within two years, Hargreaves says. He projects Instagram will have 1.4 billion monthly active users by 2020 and will generate more than $22 billion in revenue.
In the near term, Hargreaves says investor should be watching for Facebook to announce 1 billion Instagram monthly active users sometime this year. For the full year, KeyBanc projects Instagram ad revenue of about $8.9 billion, up 100 percent from 2017. KeyBanc expects Instagram to end the year with 1.1 billion monthly active users, up 24 percent from a year ago.
Hargreaves says Instagram makes FB stock a unique investment opportunity.
“Facebook continues to grow its core user base and increase the effectiveness of its advertising offerings, which, when combined with a massive opportunity to grow Instagram and monetize its messaging products, we believe creates a substantial opportunity for future growth for many years,” he says.
Instagram and Snap ( SNAP) platform Snapchat have long been the most popular social media platforms for the coveted younger demographic of users. In its most recent survey of U.S. teen users, Piper Jaffray found 45 percent of teens consider Snapchat their favorite social network, down from 47 percent in fall of 2017. Piper Jaffray found 26 percent of teens prefer Instagram, up from 24 percent in the previous survey.
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Piper Jaffray analyst Sam Kemp says Instagram has a number of advantages over Snapchat. “Instagram and Snapchat have extremely high user overlap, but Instagram is a better channel for branding, has better ad units and stronger advertiser engagement,” Kemp says.
KeyBanc has an “overweight” rating and $245 price target for FB stock. Piper Jaffray has a “buy” rating and $210 target for Facebook.
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Instagram Is a Gold Mine For Facebook, Inc. (FB) Stock originally appeared on usnews.com
