uploads///Instagram Revenue Estimates

Facebook Stock Likely to Rise with New Instagram Ads

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Jul. 28 2015, Updated 9:06 a.m. ET

Instagram ads to benefit Facebook in 2Q15

Facebook (FB) is currently one of the hottest stocks. Investors have a bullish outlook on the company because Instagram could churn out big money for Facebook.

Advertisers on Instagram now have access to Facebook’s ad-targeting tools. With these tools, advertisers can focus and purchase ads specific to the users. In return, users get to see ads on Instagram that match their interests.

Instagram has 300 million users on its platform, so it has the potential to generate $300 million in revenues for Facebook in 2016, according to a report from Bank of America Merrill Lynch.

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Current advertising scenario on Instagram

Previously, advertisers could target users on Instagram according to their gender, age, and country. But by integrating a user’s detailed information lifted from their Facebook profiles, advertisers should be able to create more relevant ads for their target audience.

According to Bank of America Merrill Lynch, and as per the above chart, Instagram’s revenues could grow to over $3.8 billion by 2020, which is 12 times the $300 million expected in 2016.

Instagram is a great place to advertise

Instagram has reached the 300 million user mark, and the majority of its users are young and high-income teens. This is exactly the type of audience big brands are after, so it’s a complete win-win for both marketers and advertisers.

According to a survey of 7,500 US teenagers conducted by Piper Jaffray last year, Instagram, Twitter (TWTR), and Facebook are the three most popular social networks among teenagers. Yahoo!’s (YHOO) Tumblr, Google’s (GOOG) (GOOGL) Google+, and Pinterest were less popular social networks.

For portfolio exposure to Facebook, you could consider investing in the Technology Select Sector SPDR Fund (XLK), which has 4% exposure to FB.

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