Earlier this month, Instagram said it would be bringing ads to its 150 million plus users, as it starts to generate revenue for its parent company. "Our focus with every product we build is to make Instagram a place where people come to connect and be inspired," the company said in a blog post. "Building Instagram as a business will help us better serve the global -- and ever growing -- Instagram community, while maintaining the simplicity you know and love."
The move comes after Facebook CEO Mark Zuckerberg talked about how important both Instagram and Facebook are to social networking users. "In the United States, Facebook including Instagram, just one in eight minutes people spend on the desktop, but one in five minutes on mobile," Zuckerberg said on Facebook's earnings call.
Facebook reported a massive beat to third-quarter estimates, earning 25 cents a share on a non-GAAP basis and generating $2.02 billion in revenue. Mobile revenue surged to 49% of total advertising revenue, which was about $881 million. Analysts surveyed by Thomson Reuters were expecting earnings of 19 cents a share on $1.91 billion in revenue.
In a research note, Citi analyst Mark May, who has a "buy" rating on Facebook with a $57 price target, noted that Instagram and advertising is crucial for Facebook, as it could hit $70 per share with help from the photo-centric social network. "In short, our analysis suggests the addition of ads on Instagram could drive $80mn, $348mn, and $765mn in total incremental revenue in CY14, CY15 and CY16," May wrote in his note.