Facebook (FB, Financial) has been on a roll for the last three years, increasing its revenue from around $5 billion in 2012 to nearly $18 billion in 2015. Its user base continues to grow while average revenue per user keeps expanding across all regions. The company has done a truly remarkable job in monetizing its user base, and WhatsApp is still many years away from realizing its true potential.
Of the three platforms – Facebook, WhatsApp and Instagram – most of the media attention has gone to the main Facebook platform due to advertising revenue growth and the flurry of product launches like Live Video, Instant Articles and so on. WhatsApp also gets its share of the limelight because of the recent growth of messaging apps into a much stronger industry than social media ever was. The only entity, therefore, to get the “short end of the stick,” as they say, is Instagram.
Instagram has turned out to be the dark horse, growing at a record-setting pace in the last few years. The 13-employee-strong company that Facebook bought for $1 billion in 2012 is now racing past 500 million users, and at this rate it might soon catch up with WhatsApp and may even give Facebook a run for its money.
One look at the chart above will easily show that Instagram is one of the fastest-growing social applications of all time, if not the fastest.
According to emarketer, Instagram sales are expected to reach $1.5 billion this year and more than triple over the next two years to reach $5 billion in 2018, a reasonable estimate. In the most recent quarter Facebook’s average revenue per user reached $3.82. From an advertiser's point of view Facebook is a single platform with multiple products on which to advertise. Though engagement will vary between Facebook and Instagram, it won’t be a huge task for Facebook to hit $1.5 billion in ad revenue from Instagram’s 500 million active users.
As for the 2018 estimate of $5 billion, though reasonable, it will depend entirely on how many users are added to the Instagram platform and how much Facebook’s ARPU grows from now until then.
What we are seeing now is a synergy that is allowing Facebook to leverage its multiple user bases across two of its three core platforms. But advertisers aren’t looking at one user base over the other. They’re only interested in how many people they can reach and for how much.
As such, Instagram’s user growth could be pivotal in taking Facebook’s ad revenues to the next level – until its video initiatives start to pay off.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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