Key Metrics That Show Instagram Could be Bigger Than Facebook
- By Sangara Narayanan
When Facebook (FB) bought Instagram right before going public, the visual media social site had only 30 million users compared to Facebook's own 800 million. At the time it was seen as a possible misstep as Facebook took the leap into becoming a public company. Now that opinion is quickly fading away as Instagram crosses milestone after milestone.
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The intrinsic value of FB
With Instagram itself now having crossed the 800 million user base mark, it's time to see what this unit can actually contribute to the company's overall growth potential. Instagram can be more powerful than Facebook as a revenue generator.
Moving on similar paths
There are several metrics to show us the similarity between the growth paths of Facebook and Instagram.
Both social media apps took roughly seven years to hit the 800 million user milestone, give or take. At the time, both apps had the bulk of their users coming from outside North America (Facebook had 78.22% and Instagram now has 80% of users from overseas).
There are also other metrics that validate this similarity, as highlighted below:
Daily user time spent on app
As of 2017, Instagram users spend about 32 minutes a day on the application, which is eerily similar to the 35 minutes that Facebook posted in 2012, when it was roughly the same size that Instagram is today.
User base growth
This is another area where both apps have grown almost in tandem but in different time frames. Facebook and Instagram have both reduced the time it takes for the next 100 million users to sign up.
When it launched in 2004, Facebook took a little over four years to hit the first 100 million users mark. The next 100 million came within eight months after that, in April 2009; the next three sets of 100 million users came in five months each. Once that network effect caught on, Facebook grew by leaps and bounds to reach what is now a 2 billion user base.
Instagram has been showing the same kind of momentum, indicating that it, too, has the advantage of the network effect driving user growth.
Why Instagram's growth numbers are more significant than Facebook's historicals
But the similarities end there. Now, we're looking at Instagram as a far more powerful platform that will most likely hit its own 1 billion user base count by 2020. But that's not where its real strength comes from.
The real advantage that Instagram has over Facebook is that all of this growth has happened despite intense competition from so many other social media apps. Today, the average user has to split her time between Facebook, Instagram, YouTube, Snapchat and several other apps vying daily for her attention.
The other key advantage is that Instagram is a visual medium and more suited than Facebook to the rapid-sharing culture of today's millennials. Visuals are the future, and Instagram is already seeing a doubling of its advertiser base every six months since it hit 500,000 advertisers. Today there are 2 million , and that's going to keep growing as users flock to the platform. Where the users go, there will the advertisers also go.
What's really important here is the momentum of user and advertiser base growth. That momentum will adequately support any future decline in Facebook's own strong numbers. Instagram may not become bigger than Facebook in terms of user base, since most of the Internet-using world has already been covered outside of China; it will form a stronger revenue base over the next five to 10 years.
Moreover, its greater relevance to today's audience puts it in a much safer place than Facebook because engagement will keep rising, as it did between 2014 and 2017, during which period user time by millennials moved from 21 minutes to 32 minutes per user per day.
The crucial argument for Instagram is that engagement on the platform is much higher than it is on Facebook, which is an indicator of where advertisers would rather spend their marketing dollars.
All of these factors will eventually contribute to making Instagram a very strong revenue base for Facebook, possibly rivaling the mother platform itself in the long run.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
This article first appeared on GuruFocus.
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