Why Instagram Stories, New Video Ads Will Ease Facebook's Ad Load Concerns

Facebook Inc FB has announced a new ad product for its Instagram Stories feature, which Loop Capital’s Blake Harper believes could be an “incremental revenue growth driver in 2017 given the engaged audience and targeting capabilities.”

Harper reiterated a Buy rating on the company, with a price target of $165.

Instagram Stories

The analyst mentioned Instagram currently has 600 million monthly active users and 150 million daily active users for Stories alone, which was likely to contribute more than 12 percent of the 2017 revenue.

“Facebook is also reportedly going to begin testing ‘mid-roll’ ads that show up in the middle of videos posted to Facebook, which should help drive further ARPU growth and offset some of the slower growth from ad load constraints with its sponsored posts in the News Feed,” Harper explained.

New Video Ads

The company intends to share 55 percent of the ad revenue with the publishers of the videos, which is the same as the YouTube payout.

“We would expect the company to initially be cautious with the roll out given the focus on user experience and its opposition to running ‘pre-roll’ ads at the beginning of videos,” the analyst stated.

Instagram and the new video ads on Facebook are expected to partially mitigate the overall slowing growth, and Harper expects the company to achieve the consensus expectations of over 34 percent revenue growth in 2017.

“We estimate Instagram can contribute approximately $1.9 billion in revenue in 2016, or 9 percent of mobile ad revenues, and $3.9 billion in revenue in 2017, or 12 percent of mobile ad revenues,” the analyst went on to say.