- Monetizing Instagram will boost Facebook revenue.
- Instagram will account for around 10% of Facebook's total revenue.
Instagram, the photo sharing app acquired by social networking giant-Facebook (NASDAQ:FB) in 2012, is finally on the way to monetize its huge user base. With 30 million users back in April 2012, when it was acquired, Instagram has witnessed tremendous growth, reaching 150 million user base by September 2013. It shares around 55 million photos per day worldwide. Nearly half its users are between age groups of 18-29 and its increasingly becoming famous among teens. Also, 60% of people using Instagram are outside of US. It has recently launched a much appreciated video sharing content. Facebook whose focus till now was just to increase the users for Instagram, has now started experimenting with advertisement as well. It plans to go creative with its photo and video based advertisements in order to engage the user. How receptive will the users be towards the photo and video based advertisements, is yet to be seen. Let us review what it will mean to Facebook in terms of revenues.
Source: Instagram Website
Expected Revenue by Instagram
In the third quarter of 2013, Facebook reported 874 million monthly active mobile users. With total advertising revenues of $1,798 billion, mobile generated 49%, amounting to $881 million in mobile advertising revenues. This gives a mobile revenue per user of $1.008.
We know that Instagram has witnessed huge growth in its user-base. Even if we assume Instagram to generate the same revenues per user which Facebook currently generates from other mobile users, Instagram can earn around $604 million, as shown in the table below.
|Mobile revenue per user(quarterly as of Sep, 2013)||$1.008|
|Instagram users (as of Sep, 2013)||150 million|
|Projected Instagram revenue (annual)*||$604.8 million|
*(Mobile revenue per user* Instagram Users*4)
Source: Facebook SEC Filings
Value Addition for Facebook
This $604 million annual revenues from Instagram will form around 10% of Facebook’s $ 6.88 billion last twelve months revenues for 2013. This is expected to further grow over time to reflect the high growth trend in advertising revenues for the company, which grew 66% in third quarter of 2013 on a Y/Y basis while mobile advertising revenues grew 479% from a year ago. Also, as the user base of Instagram increases, its revenues will further benefit. Therefore, Instagram seems right on track to help Facebook boost its global advertising revenues.
Instagram’s integration with the revenues of Facebook, will be an interesting factor for Facebook’s investors, who have been worrisome about the company’s revenue earnings capabilities. However, the integration can have its own hurdles. Whether the mobile advertising format of Facebook will be welcome in the photo sharing app still remains to be seen. So far, the company has reported good performance in 2013, with Facebook stock price returns of 88.75% year-to-date closing at $50.24 on December 11, 2013. View our Facebook stock analysis.
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