Facebook Inc (NASDAQ:FB)’s stock has edged higher in today’s morning trading, after it announced a milestone for Instagram that puts the image-focused social network above Twitter Inc (NYSE:TWTR) in terms of the number of users. According to a post on the official Instagram blog, the social network currently has 400 million users. According to Twitter, it currently has 316 million monthly active users, far lower than the reported figure for Instagram. The milestone may be even more poignant for the struggling Twitter taking into account that it tried to acquire Instagram three years ago, before Facebook landed the deal for $1 billion. The event appears to validate why hedge funds love Facebook more than Twitter as evidenced in our list of hedge funds’ most popular stocks where Facebook ranked third.
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The sentiment of hedge funds towards Facebook was supported by analysts as well. Back in June, RBC Capital Markets’ Mark Mahaney said that video and Instagram will be key growth engines for Facebook Inc (NASDAQ:FB) in the coming quarters. Reiterating an “Outperform” rating on the stock with a price target of $105.00 then, still an over 10% upside to the stock’s current price, Mahaney said that Wall Street’s growth estimate for Facebook over the next 12 months may still be conservative, especially taking into account its revenue base and potential. Considering the fresh news from Instagram, more and more people may be inclined to believe Mahaney.
According to Instagram, of the last 100 million people to join their platform, more than half live in Europe and Asia, with Brazil, Japan and Indonesia among the countries which added the most users as of late. This is important, more so because in a recent letter to investors, Silver Arrow Partners L.P. said that Facebook is in the early stages of monetizing Instagram. Should Instagram ads prove to be a hit, Facebook will get a massive boost in revenue. Ads on Instagram are expected to take off following the wider rollout owing to how much time people are spending on social networks and the appetite of advertisers to get more and more views. CNBC, citing data from eMarketer, says that ad revenue attributable to Instagram is expected to be $600 million in 2015 and is projected to balloon to $1.48 billion in 2016.
If proven to be accurate, this gives hedge funds which are long in Facebook Inc (NASDAQ:FB) a reason to celebrate. Hedge funds, in the second quarter, became more enthusiastic about Facebook, as the number of hedge funds we track with long positions in the stock had increased to 133 from 129 at the end of the previous quarter. Moreover, the total value of their holdings went up a very healthy 24.98% on the quarter to about $8.86 billion, despite just a 4.32% increase in the stock’s price between April and June. Among the hedge funds we follow, Stephen Mandel’s Lone Pine Capital held the most valuable stake in Facebook, owning about 9.76 million shares worth about $837.21 million, up by 21% quarter-over-quarter. Ken Griffin’s Citadel Investment Group increased its stake by 176% to about 5.07 million shares in the said period.
By comparison, the number of funds bullish on Twitter declined to 47 from 64 during the second quarter, while the total value of their stakes slumped to $701.39 million from $1.75 million and amassed around 2.90% of the company at the end of June.
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