Instagram is a $US35 billion business, according to Citi analyst Mark May.
Mark Zuckerberg famously paid a now seemingly paltry sum of $US1 billion for the service back in April 2012.
The $US35 billion valuation is significantly higher than the $US19 billion Citi had previously estimated. Instagram has outperformed even its most conservative assumptions around user growth and monetization.
Citi has consequentially increased its price target for Facebook from to $US91 from $US86.
Citi got its $US35 billion valuation based on its estimates of future earnings for Instagram.
While Instagram’s current financial contribution to Facebook is small, Citi believes it has the potential to eventually rake in tons of money by monetizing its audience and data assets.
The service is quickly gaining steam with advertisers and will eventually contribute more than “$US2 billion in high- margin revenue at current user and engagement levels if fully monetized,” says May in a note to clients.
May predicts 2015 will be the year that revenue streams off Facebook (e.g., Instagram, ad network/tech, WhatsApp, etc.) truly take hold.
Instagram launched advertising in the U.S. in late 2013 and was immediately able to bring in high profile clients such as Adidas, Ben & Jerry’s, Burberry, General Electric, Levi’s, Lexus, Macy’s, Michael Kors, PayPal, and Starwood.
The service built out the department further in 2013 by adding deeper analytics tools and advertising insights for page admins and advertisers to help make their campaigns more affective including the ability to leverage an Instagram users’ Facebook data for ad targeting
Instagram also brought their advertising products overseas in 2014, launching campaigns for brands in Canada, the UK, and Australia.
In October, Instagram rolled out video ads from a select group of four launch partners.
Citi estimates Instagram’s ad products could generate up to $US2.7 billion in revenue in 2015.
If Instagram delivers, then it’s going to make Zuckerberg’s $US1 billion purchase of Instagram look like the greatest steal in business history.