According to BoA/Merrill Lynch analysts Justin Post and Joyce Tran, yes.
Post and Tran commented in a note on Facebook released early this week (March 16) that both Instagram and WhatsApp are big opportunities for the granddaddy of all social media sites since each carries with it a multibillion dollar price tag and big revenue potential for its parent company.
Post and Tran noted that Instagram looks to them like a $4 + billion revenue opportunity and potential valuation at $30-$37 billion. They base that figure on users and comparisons to other social media sites.
“While Facebook has 87% of users between 18-29, Instagram likely has higher teen usage (not captured in the Pew Internet survey). Data suggested that the percentage of teens ages 13-17 who use Facebook in the U.S. fell to 88% in 2014 vs. 94% in 2013 (per Frank Magid Associates), and the cut back on their Facebook use was in favor of other social networking sites like Instagram,” the analysts wrote.
They also noted what they see as Instagram’s potential future strength.
“We expect the company to be able to bring more relevant content and connections to more people, and continue to deepen their engagement with photo and video sharing. We view the growth of mobile usage as a key driver and estimate monthly active users could exceed a half a billion by 2016,” the analysts say, adding that they expect Instagram advertising to include both news feed picture ads and online video ads placed between user-generated posts on the platform, mimicking Facebook’s existing news feed display ads and autoplay video ads.
Meanwhile, on the subject of WhatsApp, the analysts bucked some conventional wisdom (albeit conventional wisdom of 2014) that Facebook overpaid for the texting service. Based on an estimated $5 in revenue per user per year, Post and Tran forecast that WhatsApp is looking at a potential $4 billion+ a year in revenue.
Even if one assumes ad-only monetization (unlikely given the app’s founders’ aversion to ads) the revenue potential is over $1 billion. According to their post, if one were to use a comp P/S range of 10-14x and discounting back four years, the valuation of Facebook’s big purchase is between $13-$32 billion. Rendered that way, it seems Mark Zuckerberg got a good price.
The firm reiterated a Buy rating and $92 price target on Facebook. Shares of Facebook closed at $78.05 yesterday.
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