Facebook Inc (FB): Top Analyst Predicts Rocketing Instagram Metrics Could Ease Apprehensions Circling Waning Core Engagement

Baird's Colin Sebastian notes that with all eyes on Instagram monetization, even worries of waning FB engagement could serve to step up relevancy and app performance.


Yesterday, Facebook Inc (NASDAQ:FB) proved once more why its acquisition of Instagram was a savvy tech play, with the platform now boasting 25 million active business profiles, an over 60% skyrocket in growth from July’s 15 million profiles.

Top analyst Colin Sebastian at Baird believes that “Instagram disclosures could assuage concerns around FB engagement fatigue,” offering a boost in visibility to the social media titan’s business presence. With most Instagram advertisers from small-to-medium businesses, Sebastian wagers this could allow the company to advantageously use Facebook’s “targeting” proficiency to better lift brand promotion circling non-digital channels that cost more that “over-index” to the bigger advertisers.

In reaction to the metric disclosures and an Instagram platform that now has 200 million users visiting the profile of a business each day, the analyst reiterates an Outperform rating on FB stock with a price target of $200, which represents a 13% increase from where the stock is currently trading.

Worthy of note, the analyst projects Instagram comprises of roughly 10% of Facebook ad revenues, which a monetization pace “significantly outpacing that of Facebook at a similar maturity.”

“While this does not translate directly to paying advertiser growth (company disclosed 2M paying advertisers back in September compared to 6M for core Facebook), we believe that a more visible business presence on the platform should accelerate the pace of monetization, and given Instagram’s scale (500M DAUs), investors are increasingly cognizant of the contribution to consolidated financials (particularly given fears around waning engagement levels on core Facebook),” asserts Sebastian.

Glancing ahead, the analyst surmises, “Investor scrutiny on Instagram monetization likely increases given concerns over waning core Facebook engagement,” noting that dipping engagement could end up as a positive in the end, acting as “a factor of improved relevancy and app performance.”

Colin Sebastian has a very good TipRanks score with a 74% success rate and a high ranking of #21 out of 4,738 analysts. Sebastian realizes 24.8% in his annual returns. When recommending FB, Sebastian yields 29.8% in average profits on the stock.

The social media titan is a Wall Street standout, earning one of the best analyst consensus rating on the street. Taking a glance at TipRanks analytics, it is clear that a strong majority of bulls back the tech stock. In the last 3 months, 29 analysts rate a Buy on Facebook against 1 who maintains a Hold and just 1 who issues a Sell. The 12-month average price target stands at $209.30, marking an 18% upside from where the stock is currently trading.