Facebook Inc: This Small Feature in Instagram Could Be Huge for FB Stock

Facebook IncWill This Trigger Another Rally in Facebook Stock?

Having faith in Facebook Inc (NASDAQ:FB) stock can be very rewarding. All you need to do is ask Kevin Systrom, founder and chief executive officer of Instagram. He received some Facebook stock when he sold Instagram to the social media giant in 2012. Now, with the help of FB stock’s soaring share price, Systrom has become a billionaire. (Source: “Instagram CEO Kevin Systrom Joins Billionaire Ranks as Facebook Stock Soars,” Forbes, August 1, 2016.)

Of course, Systrom did offer something invaluable to Facebook when he sold his photo sharing app, “Instagram.” When Facebook acquired Instagram in 2012, it had 30 million users and no revenue. Fast-forward to today and Instagram has amassed more than 500 million users—300 million of whom use the app every single day. (Source: “Instagram Today: 500 Million Windows to the World,” Instagram Official Blog, June 21, 2016.)

Now, Instagram just got a new catalyst.

On August 2, the app introduced “Instagram Stories,” which allows users to share all the moments of their day, not just the ones they want to keep on their profiles. You don’t need to worry about overposting because all the photos and videos will appear together in a slideshow format. (Source: “Introducing Instagram Stories,” Instagram Official Blog, August 2, 2016.)

This might not seem like a big deal at first, but here’s the catch: the photos and videos will disappear after 24 hours.

Sound familiar? That’s because the feature is almost exactly the same as the central feed in “Snapchat”—another popular social app. Snapchat specializes in ephemeral messages, including text, photos, and videos that disappear after a few seconds.

Snapchat is a big player in the social/messaging app industry. In June, Bloomberg reported that Snapchat had 150 million people using its service every single day, meaning the app is more popular than Twitter Inc (NYSE:TWTR). (Source: “Snapchat Passes Twitter in Daily Usage,” Bloomberg, June 2, 2016.)

Facebook did make an effort to buy the company. In fact, Mark Zuckerberg offered as much as $3.0 billion to acquire Snapchat back in 2013. However, Snapchat’s co-founder and CEO, Evan Spiegel, rejected the offer.

According to Forbes, Zuckerberg met with Spiegel and told him that Facebook could release a nearly identical app a few days later. “It was basically like, ‘We’re going to crush you’,” Spiegel remembered. (Source: “The Inside Story of Snapchat: The World’s Hottest App or a $3 Billion Disappearing Act?,” Forbes, January 20, 2014.)

Facebook did not release an identical app back then but now, it’s adding a similar feature to Instagram.

This is good news for FB stock investors. For quite some time, there have been concerns that Snapchat’s increasing popularity could threaten Facebook’s leading position in the social app world. Even after a report from Morgan Stanley (NYSE:MS) showing that Facebook’s user engagement is growing faster than Snapchat’s in the coveted 18–24 and 25–34 age groups, some were still worried that Facebook could lose its relevancy in the fast-changing app world. (Source: “Morgan Stanley: It Looks Like Facebook Is Shrugging Off Snapchat,” Bloomberg, July 25, 2016.)

Introducing the feature on an existing app could be better than starting a new app. This is because Instagram already has a giant userbase, so some level of engagement is almost guaranteed. Moreover, if the feature becomes popular enough, Instagram could turn Stories into a standalone app, just like what Facebook did with “Messenger.”

In addition, the new feature could also help improve monetization. Instagram opened up advertising last September and by this February, it had gained more than 200,000 advertisers. (Source: “200,000 Advertisers on Instagram,” Instagram Official Blog, February 24, 2016.)

If the new Stories feature improves user engagement on Instagram, the app could see higher ad engagement as well. Analysts have predicted that Instagram could bring in $3.2 billion in revenue for Facebook this year. That’s more than three times what Facebook paid to buy the app in 2012. (Source: “Credit Suisse: Instagram Ads=Billions for Facebook,” CNBC, April 19, 2016.)

The Bottom Line on FB Stock

FB stock has more than tripled since its initial public offering (IPO). The social network’s userbase has grown to an enormous 1.71 billion. If you missed FB stock’s profit train during this period, there might still be a chance. The company is improving engagement and monetization in its ecosystem of apps. If strategies like Instagram Stories work out, we could see continued growth in the company’s revenue and FB stock investors could be further rewarded.