Facebook, Inc. FB's Instagram property continues to grow at a "rapid pace," according to KeyBanc Capital Markets.
The Analyst
Analyst Andy Hargreaves maintained an Overweight rating on Facebook with an unchanged $245 price target.
The Thesis
Instagram is the second-largest social media platform in the U.S. due to its "easily digestible" picture and short video format which is loved by its young and engaged audience, Hargreaves said in a research report.
The platform is designed to be attractive for advertisers who can easily deliver their message, which implies above-average monetization opportunities over the coming years, the analyst said.
Instagram's user base should pass the 1 billion monthly active user milestone by the end of 2018 and ad revenue should grow over 100 percent from 2017 to $8.9 billion, Hargreaves said.
Instagram should account for 27 percent of Facebook's incremental ad growth in 2018, with that proportion rising to 58 percent by 2020, when Hargreaves projects the platform will boast 1.4 billion MAU on $22 billion in ad revenue. Instagram will contribute 26 percent of Facebook's ad revenue by 2020, Hargreaves said.
Encouragingly, Instagram's momentum comes at a time when Facebook's core social media platform is maturing and ad load is reaching a saturation point, the analyst said. But Facebook has other monetization levers it can pull to make up for any declines at its core platform, including Messenger, WhatsApp and Oculus Rift, according to KeyBanc.
Price Action
Facebook shares were trading down 0.2 percent at $189.10 before the open Monday.
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