Is Facebook's Instagram a Threat to Twitter's User Growth?

Per reports, Facebook's FB Instagram recently surpassed Twitter's TWTR user base with more than 300 million monthly active users worldwide as against Twitter's 284 million.

Instagram's growing popularity can be assessed by the massive 70 million photos and videos shared on the platform everyday. We believe that the rise in Internet data consumption remains a favorable trend and will eventually spur growth for major players in this category.

Meanwhile in an attempt to prevent the accounts of celebrities from being hacked, Instagram recently launched the system of granting verified badges to these accounts just like Twitter.

Over the past nine months, Instagram's user base has exhibited a growth rate of more than 50%.  On the other hand, Twitter has been plagued by the persistent problem of a slowdown in its user growth rate. In the third quarter of fiscal 2014, Twitter portrayed user growth rate of 4.8% as against 6.3% in the prior quarter.

Meanwhile, in an endeavor to pacify its existing users and attract new ones, Twitter recently rolled out a simplified abuse-reporting mechanism for its users. We believe that this initiative on the part of the micro-blogging site will definitely help in reviving user growth rate.

Instagram was acquired by Facebook in 2012 for $1 billion and since then has gained immense popularity. Apart from Instagram, other successful acquisitions by Facebook include LiveRail, Monoidics, Snaptu, Face.com, Lightbox, Glancee, Threadsy and Parse that expanded its content and applications for the desktop as well as mobile.

We believe that the growing popularity of Instagram is primarily attributable to the fact that it is much more user-friendly in nature than Twitter.

Nevertheless, we believe that in spite of the slowdown, Twitter remains a better platform than Instagram to discover new information since it has a robust search engine and features like “lists”.

We believe that in order to challenge the likes of Twitter, Instagram has to devote more resources to the development of its news service as well as “search” mechanism, going forward.

Both Facebook and Twitter garner a significant portion of their revenues from advertisements despite facing significant competition from Yahoo! Inc. YHOO and market leader, Google (GOOGL).

Currently, both Facebook and Twitter have a Zacks Rank #3 (Hold).
 

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