Facebook (FB): A Closer Look at Instagram’s Explosive Growth

Instagram is becoming a larger and larger component of Facebook’s empire. After its acquisition in 2012, Facebook iterated on the product and focused on user growth. In 2016, Facebook then began to monetize the product more heavily by rolling out more ads on the feed. More recently, in 2017, Facebook has rolled out Instagram Stories to enormous success, reaching 250 million Daily Active Users (DAUs) on the feature alone. As we wrote about last month, Instagram Stories appears to be slowing some of Snapchat’s momentum while also driving increased user growth and user engagement.

While Instagram’s success is becoming a bigger portion of Facebook’s earnings, the company still does not regularly disclose metrics on the platform’s performance. Analysts are left to make estimates based on single data points disclosed by the company and third party estimates.

Visible Alpha aggregates analyst model estimates into a consensus number, providing visibility into investor expectations for Instagram. This is helpful not just for future estimates, but also for past performance (since they are also estimates). Visible Alpha’s consensus estimates show that analysts on average believe that Instagram DAU grew by 47% in 2016 and will grow by 38% in 2017.

Comparing Instagram’s and Snapchat’s expected DAUs shows exactly why investors are concerned about Snapchat and bullish on Facebook right now. By 2018, analysts expect Instagram to have almost 3x as many DAUs as Snapchat.

Additionally, analysts see significant upside for Instagram.

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Instagram advertising revenue per DAU was estimated at $4.52 for 2016, well below Facebook’s consolidated ad revenue per DAU of $22 and Twitter’s ad revenue per Monthly Active User (MAU) of $7 (note that Twitter only discloses MAUs). Facebook is focused on monetizing the platform more heavily and recently announced that the platform surpassed 1 million advertisers in March of this year. Analysts believe that the platform’s ad revenue per DAU will grow significantly in the coming years, reaching $10 by 2018.

With growing DAU and monetization, analysts expect Instagram revenue to grow significantly, from an estimated $1.9 billion in 2016 to $6.8 billion in 2018. This would represent 14% of Facebook’s total expected 2018 revenue, making it a significant contributor to Facebook’s future prospects.