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Facebook's (FB) Instagram is Bigger and Better than Twitter (TWTR), Should Be Worth $35 Billion - Citi

December 19, 2014 1:58 PM EST
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Price: $196.64 --0%

Rating Summary:
    46 Buy, 17 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 9 | Down: 7 | New: 41
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Facebook (NASDAQ: FB) bought Instagram in 2012 for $1 billion.. now the popular photo-friendly social network may be worth $35 billion, according to analysts at Citi. In addition to being many fold above the original purchase price, the $35 billion figure is up 84% from Citi's prior estimate.

The call from Cit analyst Mark May come after the announcement last week that Instagram had reached more than 300 million users.

The $35 billion figure from May comes based on the monitization potential of the site, which is still in its infancy. "While Instagram is still early in monetizing its audience and data assets and its financial contribution to FB is minimal today, we believe that it is quickly gaining monetization traction and would contribute more than $2bn in high-margin revenue at current user and engagement levels if fully monetized," the analyst said.

May compares Instagram favorably to Twitter (NYSE: TWTR), which itself has a $23 billion valuation. According to May, "Not only is Instagram’s audience now larger than Twitter, but its users are ~1.8x more engaged, and user growth has been greater." While still in the early stages of rolling out advertising, the firm believe brands have and will find Instagram an effective channel.

If fully monetized, assuming 420mn MAUs at YE15 (+120mn from current levels), 12.6 average feed views per day and $1.48 revenue per 1000 feed views (65% that of Twitter), Citi estimates Instagram would generate $2.7 billion in revenue in CY15

As a result of the call, Citi raised its price target on Buy-rated Facebook to $91.00 (from $86.00).

While May didn't mention it, at that price tag maybe Facebook should consider spinning-off Instagram.

For an analyst ratings summary and ratings history on Facebook click here. For more ratings news on Facebook click here.

Shares of Facebook closed at $78.40 yesterday.



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