Facebook Inc. Stock Will Top $175 On Mobile And Instagram Growth

Facebook stock has been on a run. However, FB stock could top $175, driven by mobile ad revenue and Instagram growth. 

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Shares of Menlo Park, California-based Facebook Inc. (Nasdaq:FB) have risen steadily through 2017, after what was a relatively lackluster performance last year. FB stock price is up 16% for the year, outperforming the Nasdaq Composite (INDX:COMPX), which is up 8.5% over the same period. As outlined in our recent post, we think Facebook stock is headed even higher, driven by growth in mobile and video ads, and the rise of Instagram as a major revenue source. In this post, we will look at the potential upside and attempt to quantify the same with respect to the FY 2018 performance.

Facebook Mobile Ad Revenue Will Continue To Soar

In our previous post, we focussed on the growth in Facebook's mobile ad revenues over the last 4 years. In fact, mobile ad revenue has soared at an eye-popping CAGR of 162% over the last 4 years. However, if you think this is about to peak, think again. Facebook's mobile ad revenues are expected to soar higher over the coming years. As per eMarketer, Facebook's net mobile ad revenue is expected to grow by an average of 31.5% over the next two years. Accordingly, Facebook should net mobile ad revenue of nearly $38B in FY 2018.

(Click on image to enlarge)

Facebook Mobile Ad Revenue

Source: eMarketer

Instagram Could Hit $5B In Annual Revenue faster Than Many Think

Facebook's revenue growth will also be aided by the strong growth at Instagram. With a user base of over 600M and a growing engagement makes Instagram a high-value property for Facebook. This is reflected in how ad revenues at Instagram scaled in the last year. A team of Credit Suisse analysts, led by Stephen Ju, had recently written that they expect Instagram to generate $3.2B revenue in FY 2016. That's up from $700M in 2015, a 4.6X growth in just one year. Assuming that the Credit Suisse team is right with their ballpark estimate, Instagram needs to grow its annual revenue by 60% to hit an annual run rate of $5B+, which looks likely, given the current growth trend of Instagram ad revenues.

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Disclosure: Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a ...

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Chee Hin Teh 3 years ago Member's comment

Thanks for sharing