Instagram's Leadership Shuffle At Facebook Is Simply A 'Sign Of Change', BofA Says

The departure of Instagram's co-founders Kevin Systrom and Mike Krieger from its parent company Facebook, Inc. FB is just "bad press" and unlikely to have any near-term financial impact, according to Bank of America.

The Analyst

Bank of America's Justin Post maintains a Buy rating on Facebook's stock with an unchanged $205 price target.

The Thesis

Instagram boasts more than one billion monthly active users (up 43 percent from a year ago) and 400 million daily active users (up 60 percent from a year ago) of Stories along with 25 million business profiles, Post said in a note. User growth in the core Facebook platform is showing signs of slowing down and new monetization opportunities are now more limited.

To counter the slowdown at the core platform, Facebook's senior team likely became more interested in new monetization opportunities at Instagram, including integrating content between the two, the analyst wrote. This naturally created a "culture clash" as Instagram historically operated with a "sense of independence" from its parent company. The new dynamics prompted the resignation of Systrom and Krieger -- both of which can be replaced with talented in-house executives, including VP of Product at Instagram Adam Mosseri or former COO Marne Levine.

The departure of Systrom and Krieger is a "sign of change" and new money generating initiatives could be introduced, such as ads in Stories, e-commerce opportunities and even a potential standalone Instagram Shopping app, Post said. This era of change may be necessary for the company to "improve the overall business" and result in investors reconsidering the potential value in other platforms like Messenger and WhatsApp.

Price Action

Shares of Facebook were trading higher by 2.2 percent to $168.66 at time of publication.

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