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Instagram: One Of Facebook’s Smartest Acquisitions Ever

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Facebook bought Instagram in 2012 for an eye-popping $1 billion. At that time, the two-year-old Instagram had just 13 employees and 30 million users. Now it can be said that Facebook’s bet has paid off as there are about 400 million users using the photo-sharing service — more than Twitter’s user base.

Instagram: One Of Facebook's Smartest Acquisitions Ever

Generating good money for Facebook

Along with the strong user growth, Instagram is making more revenue than any other Facebook app, excluding the social networking site’s own app. Instagram’s revenue for the first three months of 2016, was $570 million or 10% of Facebook’s revenue for the quarter, estimates Credit Suisse. In 2016, the photo-sharing service is expected to generate $3.2 billion in revenue.

Three years ago, Facebook’s photo-sharing app started rolling out advertising on its platform. The app’s monetization efforts, which include Premium Video and Dynamic Product Advertising, will continue to drive ad revenue across platforms, say Credit Suisse analysts.

“Our projection for consolidated ad revenue of $5.24 billion in [the first quarter] reflects our projection for $573 million and $260 million in contribution from Facebook’s Instagram and premium video ad product, respectively,” the analyst says.

However, mobile advertising revenue is its real strength and is expected to grow 78% year over year for the first quarter, compared to 3% growth for desktop advertising, state the analysts.

The majority of Instagram’s recent growth has been international. In a September blog post, Instagram said more than 75% of its users live outside the U.S.

“Among the last 100 million to join, more than half live in Europe and Asia. The countries that added the most Instagrammers include Brazil, Japan and Indonesia,” the photo-sharing service said.

Instagram: a good buy by Facebook

In 2012, Facebook’s purchasing the photo-sharing app seemed excessive, but now, it looks like a great deal. At that time, the social media giant was itself making a little revenue from mobile devices, and there was also a risk of being usurped by other social media platforms such as Twitter.

Despite all odds, Facebook bought WhatsApp and Instagram to convey to investors that it is serious about dominating the mobile ecosystem. Instagram can become Facebook’s third major platform with 1 billion users if it continues to grow its user base, with Facebook and WhatsApp being the other two with over 1 billion users. WhatsApp was purchased by Facebook for $22 billion in 2014.

On Wednesday, Facebook shares closed up 0.12% at $112.42. Year to date, the stock is up by almost 5%, while in the last year, it is up by over 39%.

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Aman Jain
Personal Finance Writer

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