Facebook Inc (NASDAQ:FB) may achieve around $240-485 million in ad revenue from Instagram in 2014 with over 150 million monthly active users (MAUs), says a report from Goldman Sachs by analysts Heather Bellini, Heath P. Terry, Brian Baytosh and Sonya Banerjee. Analysts believe that Facebook management is an expert in capitalizing on new mobile monetization opportunities without compromising on engagement.
Teen concerns null with Instagram
Facebook revealed that it launched ads on Instagram on October 3. Analysts believe ads on Instagram are a “positive largely expected by the market”, and the company holds expertise in achieving balance between the user experience and advertiser’s demand of rolling out ads in the news feed on mobile.
Facebook Inc (NASDAQ:FB) is experiencing some concerns over interest of teens, but with Instagram the engagement will remain substantially strong, believe analysts. However, an issue that Facebook is concerned about is that Instagram requires only email address, username and password rather than date of birth.
MAU growth for Instagram
Facebook Inc (NASDAQ:FB) announced that Instagram has 100 million monthly average users in the first quarter of 2013, which was an increase over 22 million monthly average user at the time when Facebook acquired Instagram on April 2012. On June 20th while launching Instagram video, Facebook Inc (NASDAQ:FB) stated that its monthly average users reached 130 million. On October 3, the largest social networking site announced that Instagram has over 150 million monthly average users. For the purpose of valuation, analysts have assumed 105 million, 135 million, and 155 million, respectively, for the first quarter, second quarter and third quarter of 2013.
Facebook mobile only ARPU used
Analysts based their estimates on mapping Instagram ARPU (average revenue per user) to Facebook’s mobile only ARPU over the first five quarters the “company showed mobile ads, which with a similar ad load would also imply CPMs similar to those historical periods rather than the stepped up mobile pricing Facebook is currently enjoying.”
Monthly active users for Instagram climbed 15% quarter on quarter in the third quarter of 2013 to over 150 million, from 130 million towards the end of the second quarter 2013, which is approximately 0.6X the quarter on quarter growth of Facebook’s mobile only MAU growth of 25% in the fourth quarter of 2012.
For the fourth quarter and last quarter of 2014, analysts expect MAU of Instagram to grow 0.6X that of Facebook’s mobile-only MAU growth from 1Q13 through 1Q14.
Analysts have reiterated a Buy rating on Facebook Inc (NASDAQ:FB) with a 12-month price target of $61.