Facebook (FB): A Glimpse Into Instagram Stories Opportunity

There are many reasons to like Facebook (NASDAQ:FB) stock, but Wells Fargo analyst Ken Sena thinks one of the biggest reasons is Instagram.

In a research note issued today, Sena explores the rapid growth of “Stories” on Instagram (IG), which recently surpassed 400mm daily active users (DAU) and where the analyst believes a meaningful revenue opportunity stands to be realized. In fact, based on FB comments, Sena estimates that Stories across FB platforms now represents nearly 30% of “sharing,” with time spent within IG Stories specifically tracking to similar levels of adoption.

Sena wrote, “Given our positive agency checks (around both IG and IG Stories) and Facebook / IG’s already well established base of businesses / advertisers, we believe this “gap” can close quickly. Specifically, our forecast assumes IG Stories can reach Snapchat’s current level of monetization (or $5 per DAU, up from $1 today) by 2020E, adding $4bn in incremental revenue to IG alone. Meanwhile, assuming IG feed can grow monetization at a 31% CAGR through 2020E (or similar FB’s growth following its mobile inflection), we see over $20bn in combined revenue between the two.”

Furthermore, “Although it is possible that some of IG’s growth has come at the expense of FB core at the margin, our conversations with advertisers point to the fact that FB continues to offer better reach and stronger click-through than IG, making it better suited to performance advertising still, while ROIs on both platforms remain healthy. In addition, we would point to the simultaneous growth in both FB and IG engagement over the last several years as indicative of users’ support for >1 platform.”

Net net, Sena reiterates an Outperform rating on Facebook shares, while raising the price target to $250 (from $230), which represents a potential upside of 27% from where the stock is currently trading. (To watch Sena’s track record, click here)

The word of the Street is an overwhelmingly bullish one for this social giant, as TipRanks analytics exhibit FB as a Strong Buy. Out of 29 analysts polled in the last 3 months, 27 are bullish on Facebook stock, while one remains a fence sitter, and one is bearish. With a return potential of nearly 13%, the stock’s consensus target price stands at $221.29.

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