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  1. Home
  2. / Investing
  3. / Technology

Instagram Has Become Facebook's Main Growth Engine During Its Transition Period

All signs suggest Instagram has been contributing heavily to Facebook's recent revenue growth. And the social media platform remains busy launching new services that could further boost its top line.
By ERIC JHONSA
Jul 12, 2019 | 04:22 PM EDT
Stocks quotes in this article: FB

With Facebook  (FB) seeing slowing growth for its core app and still in the early stages of monetizing Messenger and WhatsApp, Instagram now appears to be playing an outsized role in driving Facebook's revenue growth.

And with almost each passing month, Mark Zuckerberg's firm seems to be unfurling a new initiative to help Instagram keeps its top-line momentum going.

A few of these initiatives have been related to realizing the untapped potential that Instagram, which has long been a vital marketing and promotional channel for legions of brands, retailers and small businesses, possesses as an e-commerce platform. In March, a little over two years after it began letting brands and retailers embed shopping "tags" within images that could let users learn more about and potentially order a featured item, Instagram unveiled Checkout, a service that lets users buy tagged items without leaving its app.

Notably, Instagram, which like Facebook proper gets nearly all of its current revenue from ads, collects a fee every time that Checkout is used to place an order. At the same time, Instagram chief Adam Mosseri has suggested that the data Instagram obtains from shopping activity can help improve its ad targeting. Instagram plans to let both businesses and its many "influencers" tag items that can be purchased via Checkout.

In addition to launching Checkout, Instagram has rolled out a Shopping channel within its Explore tab that features content with tagged items, and has given businesses the ability to add "product stickers" to Instagram Stories content (including Stories ads) that function much like tags. The latter move comes as Facebook makes an aggressive push to better monetize its stories services, as it contends with usage pressures for its core news feed.

Separately, Instagram is just a couple weeks removed from announcing that it will be placing ads within the Explore tab, which has over 200 million daily active users (DAUs) and over 500 million monthly active users (MAUs). And about three months ago, Instagram was reported to be talking with advertisers about buying ads on its IGTV video platform for content creators, which launched last year.

Facebook doesn't break out how much annual revenue it gets from Instagram. However, all signs suggest that the platform has become a major contributor to Facebook's top line. On the Q1 earnings call, CFO Dave Wehner noted that the 32% annual increase Facebook saw in its Q1 ad impressions was "primarily driven by ads on Instagram Stories, Instagram Feed and [the] Facebook News Feed."

Jefferies has forecast that Instagram's revenue will grow to $14 billion in 2019 from $8 billion to $9 billion in 2018, and SunTrust has estimated Instagram will produce $15.8 billion in revenue this year. For comparison, Facebook's total revenue is expected on average by analysts to grow 24% this year to $69.5 billion.

The fact that time spent on Facebook's core app has been pressured in the developed markets that produce the lion's share of its revenue has been a headwind for core Facebook's revenue growth. Also, Wehner indicated on the Q1 call that "ad targeting-related headwinds" stemming from reduced access to user data will begin having a greater impact on revenue growth during the second half of 2019.

But while core Facebook is going through a transition period right now, Instagram is still performing at a high level in the wake of its recent leadership changes. And from the looks of things, Instagram's new leadership isn't shy about launching new projects meant to grow the platform's contribution to Facebook's top line.
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TAGS: Investing | Technology |

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