Instagram – and advertising on WhatsApp – could be the next big revenue drivers for Facebook, analysts say

Business Insider US
Facebook CEO Mark Zuckerberg
Getty; Samantha Lee/Business Insider
  • Instagram will be a major driver of Facebook's growth as revenue from Facebook's core business is expected to slow in the coming years, according to investment bank Jefferies.
  • Facebook is due to report quarterly earnings next Wednesday.
  • Shares were up 13% this year, but are still down 20% over the past 12 months.

    Instagram will likely generate around R195 billion in revenue this year and become an increasingly important driver for Facebook's growth as the platform's core business is expected to slow, investment bank Jefferies analysts told clients Monday.

    The analysis highlighted Instagram, Facebook Messenger, and WhatsApp's growing importance for the social network.

    "We believe that Instagram is a material driver for growth in '19 and can grow 60%+ supporting core FB which could decelerate below 20%+ growth for the first time," a team of analysts led by Brent Thill said.

    See also: The number of messages sent via WhatsApp each day has tripled since Facebook bought it four years ago

    "Instagram continues to drive growth and we think could add an incremental $5B [R69 billion] in '19" to revenue, to north of $14 billion [R193 billion], the team said.

    Instagram has grown its user to base from around 30 million, when Facebook purchased the platform in 2012, to now more than 1 billion.

    "We see upside to pricing, users, and impressions as Instagram continues to improve its advertising efforts across the entire advertising funnel," they added.

    Similar growth opportunities can be found in WhatsApp and Facebook Messenger, the analysts predict, pointing specifically to possibilities for both paid messages and advertising across both platforms.

    Facebook shares have been in recovery mode for nearly a year. It was revealed in early 2018 that the consulting firm Cambridge Analytica improperly used Facebook data from as many as 87 million users, slamming the stock and hurting users' confidence in the platform's safety measures.

    Instagram and Facebook revenue and growth

    In July, Facebook warned shareholders in its second-quarter earnings report that it expected revenue growth to slow significantly in the coming years due in part to a focus on users' privacy and security; shares crashed more than 20% in after-hours trading that day. Three months later, when Facebook reported third-quarter earnings results, the company said its daily active users in the US flatlined for the quarter - but didn't fall.

    Jefferies, which has a "buy" rating and $180 price target - 20% above current levels, concluded that it doesn't think users and advertisers are leaving "in droves," which in part influences the firm's optimistic outlook. Still, the analysts believe there is still "cleanup work left as social fatigue still lingers."

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