The decision of Facebook to acquire Instagram for $1 billion in 2012 is definitely rewarding as the photo and video sharing platform’s valuation increased significantly to a staggering $35 billion.
Citigroup said its $35 billion valuation for Instagram was based on conservative assumptions around the company’s user growth and monetization. The firm previous valuation for Instagram was $19 billion.
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The firm raised its valuation for Instagram due to its faster growth in audience and continued monetization gains by social media properties.
In a note to investors, Citigroup said, “While Instagram is still early in monetizing its audience and data assets, and its financial contribution to [Facebook] is minimal today, we believe that it is quickly gaining monetization traction, and would contribute more than $2bn in high-margin revenue at current user and engagement levels if fully monetized,”
Citigroup also raised its price target for the stock of Facebook from $86 to $91 per share. The firm is expecting that 2015 will mark the first year that the social network giant “begins to develop more meaningful off-Facebook revenue streams” including Instagram and WhatsApp among others.
Facebook started monetizing Instagram by rolling out advertisement on October last year. At the time, Goldman Sachs analyst estimated that Facebook would generate around $240 to $485 million in revenues from Instagram this year.
Analysts at Citigroup estimated that Instagram could deliver as much as $2.7 billion in revenue for Facebook in 2015.
A study from Forrester Researcher showed that users are more engaged on Instagram compared with other social network platforms such as Facebook and Twitter
Instagram is now bigger than Twitter
Last week, Instagram announced that the number of its monthly active users (MAUs) reached more than 300 million, bigger than Twitter with 284 million MAUs. The popular microblogging company has a market capitalization of around $23 billion.
In reaction to the reports that Instragram is now bigger than Twitter, the microblogging company’s co-founder Evan Williams said he doesn’t care. He emphasized that Twitter is making more money than the photo and video-sharing platform.
Williams said, “If you think about the impact Twitter has on the world versus Instagram, it’s pretty significant. It’s at least apples to oranges. Twitter is what we wanted it to be…Twitter makes a hell of a lot more money than Instagram, if that’s what Wall Street cares about.”