A Picture Is Worth $100B USD

(On Instagram)

Extract Monday: A Picture is Worth $100 Billion Dollars — On Instagram

I saw a fascinating simple column chart from Statista regarding the size of the Global Influencer Market, where it projected the market going from 1.6B USD to 2.38B USD over a 3 year period (2017–2019). This is but a sliver of the recent valuation given to Facebook’s fast growing subsidiary — which has recently been estimated by Bloomberg Intelligence to be worth $100B USD. This estimated value implies a 100X return of Facebook’s 2012 acquisition cost — dwarfing public rival Snapchat by a factor of 5 times SNAP’s recent 20B market cap.

The 100B USD estimate from Bloomberg has not been the only valuation. In December 2017, firm MediaKix came up with its own back of the envelope estimate, which did a “comp” with publicly traded rival Snapchat:

“Since Instagram is owned by Facebook, there is no public information on its worth as an individual company. In order to estimate Instagram’s worth, our research team utilized the following methodology:”

“First, we estimated Snapchat’s worth per daily active user (DAU) to be approximately $108. We calculated this by dividing Snapchat’s market cap of 19 billion by its 178 million daily active users.”

“Then, we applied Snapchat’s worth per daily active user to Instagram’s 500 million daily active users to estimate Instagram’s market cap. Through this calculation, we estimated Instagram’s worth to be $54 billion.”

“We applied a multiplier of 1.9 to this figure to account for differences in Instagram and Snapchat’s user growth rates. The multiplier was calculated by comparing Snapchat and Instagram’s quarterly user growth rates in Q2 and Q3 of 2017 and then discounting by 25%.”

“With the multiplier applied, our final estimate of Instagram’s market cap is $102 billion, over 100 times the price Facebook paid for it.”

The child is growing faster than the parent, with the Instagram platform projected by Bloomberg to grow to nearly 2 billion monthly active users within half-a-decade. Currently, eMarketer estimates a leap for Instagram’s contribution to total Facebook revenues, via global ad revenues, going from $4.10 billion in 2017 to $10.87 billion by 2019. There has been quite an evolution from a mobile still photo sharing app used by 30 million users.

Since the 2012 acquistion, there have been expansions of the platform’s products including Stories, which now allows for sharing of third-party posts, and cross-posting (i.e. sharing same media to different platforms) with Facebook Stories — and soon there could be longer-form video. Instagram video lengths may go from the current 60 second limit up to 60 minutes, which will still be mobile-native and vertical in format. It has been rumored in the works will be monetization, beginning of course with those influencers I talked about. Part of that monetization appears to include a pilot program enabling in-app purchases.

Eric Jackson, in a 2017 Forbes piece, accurately described the Facebook acquisition and the potential value of Instagram:

“Facebook had filed to go public in February 2012. Almost immediately, they started getting raked over the coals by Wall Street investors for their lack of an answer to how they were going to have an effective mobile strategy. To their credit, they basically totally rewrote their mobile app for the next 6 months and answered that question. They also bought Instagram in April that year, and IPO’ed one month later.”

“Back then, even though 30 million users seems so small, it was obvious that Instagram was going to be a juggernaut. It was a perfectly built app for the mobile experience. It was an app first, not a website. It has obtained a critical mass of users and was dominant in the photo sharing category…”

“Not only was it clear that they were going to be the dominant mobile app, but it also seemed like Facebook was going to be negating the one company that had the best shot of unseating it as the dominant social network…”

Here’s what could prove to be a spot-on projection by Jackson to help us understand the $100B estimate of Instagram’s value may in fact not be as ebullient as some might think. Here is Jackson’s rhetorical question from 2017:

“Is it unrealistic to say that $200 billion of Facebook’s $435 billion market cap is due to Instagram owning the younger demographic that Facebook doesn’t interest?” *(Facebook market cap at the time of the piece, April 2017, was 435B US.)

Here’s a chart from MediaKix reflecting a recent market cap on Facebook. The chart is outdated and public valuations will change from day to day. (As of this writing FB’s value is higher, but it could later be lower, than the chart.) If Mr. Jackson is right, and I think his logic has played out as he feared, then instead of being worth just 20% of Facebook, this subsidiary could really be worth 40%.

Originally published at big-stack.com on June 26, 2018.