Facebook Inc (FB): Yes, Instagram Has Massive Potential!

Yahoo! Inc. (NASDAQ:YHOO) has recently ramped up its social presence with the acquisition of Tumblr for $1.1 billion. The rapidly growing Tumblr has more than 300 million unique visitors, who have already shared more than 50 billion blog posts. And the acquisition of Tumblr will enable Yahoo to add traffic to its media network and video network.

As a result, Yahoo! Inc. (NASDAQ:YHOO) will be stepping up its monetization plans for online video ads to keep up with Google Inc (NASDAQ:GOOG)’s dominance. And with Facebook and Instagram’s increased inclination towards video will lead to heightened competition for not only user engagement but also for online video advertising dollars.

Instagram is very valuable

At the time of Facebook Inc (NASDAQ:FB)’s acquisition, Instagram was a pre-revenue company with approximately 27 million users, and growing at a rapid pace. And Mark Zuckerberg paid out $1 billion to buy Instagram. In other words, Facebook paid out roughly $37 per user to buyout a competing social media company. Utilizing that math for Instagram’s 130 million users, the photo-sharing app can be valued at a whopping $4.8 billion.

And Instagram hasn’t started generating revenue by itself, but has likely contributed heavily to stimulate the user experience on mobile for Facebook. In Q1 2013, Facebook Inc (NASDAQ:FB) grew its top line revenues by 38%, and its mobile monetization hit a run rate of $1.5 billion. And once Facebook starts monetizing Instagram with display ads and video ads, the company’s growth rate should see a solid reacceleration from current levels as Instagram is a very formidable player on mobile.

Advertisers are diving in

Advertisers of all sizes love Facebook Inc (NASDAQ:FB), as it provides the ability to advertise on a social context while allowing the usage of user data. Such highly targeted advertising has enabled Facebook to have more than 1 million active advertisers on its platform and growing rapidly. As Facebook’s sales and advertising personnel already have strong relationships with these big advertisers as well as small businesses, the salesforce can easily cross-sell Instagram ads in the future. Clearly, both Facebook Inc (NASDAQ:FB) and Instagram have very lucrative positions in the long run.

Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG).

The article Facebook: Instagram Has Massive Potential! originally appeared on Fool.com.

Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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