Instagram Proving its worth to Facebook (NASDAQ:FB)

Photo of author

By Jacob Maslow

Just three months after the furor surrounding the Cambridge Analytica Data Leak made headlines around the world, Facebook (NASDAQ:FB) stock hit an all time high.

This week saw Facebook jump almost 2 percent in early trading on Thursday to hit a record $196.05 a share. The figure surpassed the February 1st high of $195.32 before the Cambridge Analytica Data Leak resulted in CEO and founder Mark Zukerberg testifying before a US State Senate Committee.

The leap to nearly $200 a share values the social media giant at more than $565 billion. Shares of Facebook are up 67% over the last two years. Despite a major sell-off in early 2018, Facebook stock has risen almost 30% over the last year. The social media giant generated $8 billion in global revenues in 2017. By 2020, it’s predicted that global revenues will top the $47 billion mark.

So, what’s behind the leap in revenues and strong profit momentum? Well, Instagram and Snap (SNAP) platform Snapchat are proving to be the most popular social media platforms for the highly coveted demographic of younger users.  Many of the users Buy Instagram followers such is the lucrative sway in getting sponsorship or advertising deals for companies keen to reach the cash rich young,

According to Andy Hargreaves, an analyst at KeyBanc: “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.”

It is estimated that over 27% of revenue growth for Facebook in 2018 will come directly from Instagram. Advertising revenue from Instagram is expected to top $8.9 billion in 2018, a full 100% jump from 2017 ad revenues. It’s share of overall Facebook revenue growth is forecast to more than double in two years to 58%. By 2020, Instagram is projected to count 1.4 billion active users, generating revenue around the $22 billion mark.

The success of Instagram is because of its demographic., Piper Jaffray in its most recent survey of U.S. teen users, revealed that 45 percent of teens of the teens surveyed regard Snapchat as their favorite social network. Interestingly though, the number was down from the 47 percent recorded in 2017. Meanwhile, 26 percent of teens prefer Instagram, up from the 24 percent recorded last year.

The Instagram platform is regarded as more advertising friendly for brands. It has stronger ad engagement and better ad units than Snapchat, even though the two overlaps in target audience.

Facebook fell to as low as $150 a share in the weeks following the Cambridge Analytica data leak. However, Facebook stock still enjoys a ‘Buy’ rating despite hitting uncharted territory at nearly $200 a share. Piper Jaffray has a “buy” rating and $210 target for Facebook, whilst KeyBanc has an “overweight” rating and $245 price target for Facebook stock. Investing legend Mark Cuban says Facebook will produce “the world’s first trillionaires,” however, that should still leave plenty of money for every day investors who execute the right trades early enough.


Images Courtesy of DepositPhotos