Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

Why Facebook Inc (FB) Loves Instagram: Millenials’ Favorite Social Media Platform

Ready with your selfie stick? Instagram is the most narcissistic social media platform according to millennials, new research has discovered. Over 60% of the 3,701 students polled by LendEDU voted for Instagram as opposed to the mere 10% who chose Facebook Inc (NASDAQ:FB), with Snapchat and Twitter only receiving 15% and 11% of the votes, respectively. “With just a few filters, a little saturation, and a clever caption, social media can make even the most average Joe look like an esteemed socialite,” the research by LendEDU concluded.

Instagram enables its users to publish of photos or short videos (mostly of themselves) which appear in their friend’s newsfeed. Unlike Facebook or Twitter, text plays a much smaller role on Instagram, where posting multiple selfies appears to have become almost socially acceptable. While this may be damaging for those involved, especially if you factor in peer pressure and all kinds of unrealistic expectations, it certainly is not damaging for one big business owner: Facebook.

Facebook bought budding rival Instagram for $1 billion way back in 2012, and the photo-sharing app is fast becoming one of its key revenue drivers. Let’s look at four reasons why Instagram is so important to Facebook:

1. Advertisers– Instagram announced that they now have over 1 million active advertisers, up from 500,000 in September and 200,000 a year ago. Bearing in mind that Instagram only started selling ads in 2015 and this looks very impressive. According to eMarketer’s estimates, Instagram will generate $3.64 billion in global ad revenue this year (to get an idea of the overall picture, Facebook total ad revenue for 2016 came in at $26 billion). And, there is potential for expansion as there is a ready pipeline of 4 million active advertisers on Facebook which could be targeted for Instagram ad space.

2. Small businesses– Instagram has found its niche with small businesses. Instagram’s VP of Business James Quarles stated “Many small businesses don’t have a website or the traffic to sustain a separate place for booking; they just want to have that as part of their Instagram experience. We’re just getting started in building the tools businesses would like to find customers and get people to stores.” These tools include, for example, carousel ads and a new “booking” tool that will allow users to set up appointments or reservations at restaurants through business profiles.

3. Number of users– at 600 million monthly users, Instagram has seen an explosion of users recently, which is a very encouraging sign for the app’s future growth potential. The service’s monthly active users increased from 500 million to 600 million in just six months- representing a booming audience dominated by millennials for advertisers to get excited about. Perhaps this isn’t surprising given that Facebook itself appears to specialize in growing user bases- the social media site has now reached an incredible 1.79 billion monthly active users up 16% y-o-y.

4. SNAP competition– Instagram has transformed itself into a service for daily sharing rather than for users to just post the occasional photo. Crucially, Instagram introduced the new Stories feature where users can share short video clips overlaid with emojis and text that disappears after 24 hours. In fact, this new feature, which now has 150 million daily users, is almost identical to the Stories feature on messaging and multimedia app Snapchat. Through Instagram, Facebook has found a way to compete with recently-public SNAP on a more direct level- even if it is by mirroring features already found on Snapchat.

If Facebook loves Instagram, then the market certainly loves Facebook. The stock has a Strong Buy analyst consensus rating on TipRanks with 35 analysts publishing buy ratings on the stock in the last three months (out of a total of 37). At the same time, the average analyst price target of $161.76 represents a 13.4% upside from the current share price. It is possible that this is even on the conservative side: five-star Jefferies analyst Brian Fitzgerald reiterated his Buy rating on the stock on 29 March with a very bullish $175 price target (22% upside).

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