Do Instagram Ads Make Facebook Stock A Buy?

Facebook Inc FB recently announced that it will be opening up Instagram and its more than 300 million users to advertisers for the first time. But what does this new opportunity mean for Facebook’s shareholders, and does the announcement make Facebook’s stock a buy?

SunTrust analyst Robert Peck released a report this week devoted entirely to Facebook. Here’s a summary of what Peck had to say about the tech giant following its Instagram news.

The Details

Peck breaks the specifics of the Facebook announcement into five points:

1. Facebook will open Instagram inventory to its list of over 2 million current advertisers.

2. Instagram has upgraded its interface to allow for better automation and measurement related to ad campaigns.

3. Instagram will be opening the doors to more advanced targeting options such as demographics and interests in upcoming months.

4. Instagram will be testing ads that could allow for in-app purchases.

5. The Instagram advertising announcement follows the launch of carousel ads just last week.

The Opportunity

Peck includes a list of early projections about what shareholders can expect from Instagram advertising. Peck forecasts monthly mobile active Instagram user growth to 400 million, and daily active user penetration of about 65 percent.

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These assumptions yield a projected 94 billion annual total visits, suggesting to Peck that Instagram could contribute about $1.9 billion in total annual advertising revenue.

“We note that pricing trends could be materially higher depending on the type of ad unit and granularity of targeting,” Peck adds.

Time To Buy?

SunTrust believes that now is as good a time as any to be accumulating Facebook’s stock. The firm has a Buy rating on Facebook and a $100 target for the stock.