How Instagram Could Become A $9 Billion A Year Business for Facebook
Facebook (NASDAQ:FB) recently announced that Instagram crossed 500 million monthly active users, with 300 million users accessing the app daily and 80% of users residing outside of the United States. [1] This is a significant landmark, and the highly engaging photo sharing app is already being monetized using innovative in-app advertising. Impressively, its user growth hasn’t really slowed down over time; Instagram has managed to add an average of 11.1 million subscribers monthly since December 2014.
Instagram also continues to grow in importance as a revenue source for Facebook. Instagram now has over 200,000 advertisers on its platform, and 98 of the top 100 advertisers on Facebook also chose to advertise on Instagram in recent quarters. 
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We expect average monthly users on Instagram to increase from the current 350 million figure to over 730 million by the end of our forecast period (the 350 million figure is an average of 300 million users at the end of 2014 and 400 billion at the end of 2015). We forecast Instagram’s average revenue per user (ARPU) to be around $9 by 2020. This could yield revenues of around $7 billion a year by 2020, contributing about 12-13% of Facebook’s total revenues, per our estimates.
To put our projected ARPU of $9 into perspective, the table below shows the ARPU generated by Facebook and Twitter in the last two years. $9 appears relatively conservative, considering that Instagram is capable of generating more targeted ads and better engagement than Facebook or Twitter. [2] If Instagram manages to generate ARPU of $11.96 (Facebook’s 2015 ARPU) by 2020, it could become a nearly $9 billion a year business and contribute as much as 15% of Facebook’s top line.
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- Instagram Today: 500 Million Windows to the World, Instagram For Business, June 21 2016 [↩]
- Instagram Generating Higher Engagement Than Facebook, and Growing Fast [Report], Social Media Today, July 11 2015 [↩]