Instagram ads to benefit Facebook in upcoming quarters
Instagram reported its click-through rate of 1.50% for the month of August to date according to a report from Direct Marketing News. This rate is almost double Facebook’s (FB) rate. This clearly indicates the potential of Instagram to churn out big money for Facebook.
Advertisers on Instagram now have access to Facebook’s ad-targeting tools. With these tools, advertisers can focus on and purchase ads specific to users. In return, users get to see ads on Instagram that match their interests.
A recent report from Bank of America Merrill Lynch predicts Instagram will earn $300 million in revenues for Facebook (FB) in 2016. You can see this increase in the above graph.
Current advertising scenario on Instagram
Currently, advertisers can target users on Instagram by their gender, age, and country. 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 you can see in the above graph, Instagram could grow to more than $3.8 billion in revenues by 2020, which is 12 times more than 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 situation 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 were the three most popular social networks among teenagers. Yahoo!’s (YHOO) Tumblr, Google’s (GOOG) Google+, and Pinterest were less popular social networks.
For diversified exposure to Facebook, you can invest in the Technology Select Sector SPDR Fund (XLK). XLK invests 4% of its holdings in Facebook.