Instagram Explore promises to be a $1 billion advertising goldmine for Facebook
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Instagram Explore promises to be a $1 billion advertising goldmine for Facebook

Photo-sharing social media site Instagram may yet turn out to be the best purchase Facebook has ever made. The social media giant bought the smaller, visually-themed, platform in 2012, and it’s more than justified the $1 billion price tag the company paid. One of Instagram’s main draws for Facebook is that it appeals to a critical target audience of younger users – the “Boomlets” (or Generation Z) that come after Millennials. But another reason has just been highlighted by Morgan Stanley analysts: the platform could become an advertising goldmine.

Facebook’s share price has appreciated by 42% year to date

Instagram June 28

Source: Yahoo Finance

Morgan Stanley analysts have claimed that the addition of advertising space to Instagram’s “Explore” tab could be worth $1 billion in revenue to Facebook by 2021. The platform’s new feature will see adverts pop up when users tap on the tab and scroll to see related content – but the main grid will remain ad-free. According to analyst Brian Nowak, this move “speaks to how Facebook continues to find ways to extend its earnings runway by monetising under-monetised engagement and usage.”

According to Nowak, we have to make two fairly non-controversial assumptions: first, that growth at Instagram remains on its current trajectory, and second, that Facebook managed to monetise the new feature to the rather underwhelming amount of $2 per user. If it accomplishes that, he says, then Facebook will be sitting on an extra $1.2 billion by 2021, putting its upside against current estimates at 2%.

That’s great news for Facebook, and it comes at a time when the company is making headway into video content on its own site. In a recent note, Deutsche Bank AG analysts have claimed that Facebook’s video-streaming service, the much-discussed Watch, could be worth as much as $5 billion in revenue over the next couple of years.

Disclosure

Dominion holds Facebook in its Global Trends Ecommerce Fund.


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