600 Million Reasons to Like Facebook Stock

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Shares of Facebook (FB) -- down some 6% over the past three months -- haven't delivered the returns investors expected since the end of the presidential election. Not unlike, say, financial stocks. But the social media giant still has tons of assets that can drive revenue higher in the quarters and years ahead.

One such asset Facebook can bet on is Instagram, which announced Thursday it has surpassed 600 million users, marking a 20% rise since the photo-sharing platform last reported its user metrics in June. Just how impressive is 600 million users, which grew by 100 million users since June? It means Instagram, acquired by Facebook for $1 billion in 2012, now has almost twice as many active users than Twitter (TWTR).

It was just over a year ago Instagram announced it had surpassed 400 million users, which was preceded by its announcement in December 2014 that it had reached 300 million users. At this rate, Instagram, which is estimated to be worth $50 billion, may reach 800 million users by end of 2018. And it's possible the 1 billion user mark could be reached by 2020.

It's hard now to remember how Facebook CEO Mark Zuckerberg was ridiculed for spending $1 billion on a "merely" a photo app. Critics underestimated just how popular feline photos and Michael Jordan memes would become. Now research firm eMarketer expects Instagram to generate $1.5 billion in advertising revenue this fiscal year. Assuming the trend continues next year, this should add strong incremental revenue to Facebook's already-strong top line.

In November, the Menlo Park, Calif.-based tech giant easily beat Wall Street's third quarter estimates on revenue and earnings per share. Not only did both measures surpass Thomson Reuters consensus estimates for 97 cents per share on $6.92 billion, it marked year-over-year growth of 91% and 56%, respectively. But investors were spooked by comments from the management, warning that Facebook lofty growth pace will begin to slow.

Obviously, with almost 1.8 billion users on Facebook worldwide, it's going to get incrementally harder to not only attract more users, but also get those users to click on ads they had not already seen. But with momentum coming from Instagram and its Messenger app, which earlier this year exceeded 800 million users, Facebook is not without growth options. And investors who bailed on Facebook stock on fears of declining ad potential may soon regret they did.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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