Facebook Inc (FB): Advertising on Instagram Is Just Getting Started

A few months ago, Instagram revealed that it had 200,000 active advertisers on its platform. The photo-sharing network benefited from pent-up demand and cross-selling from its parent company Facebook Inc (FB). That allowed it to skyrocket past Twitter Inc’s (TWTR) 130,000 active advertisers in less than six months after opening up its ad platform. Facebook stock investors must be happy with those results.

Still, Instagram is somewhat difficult for businesses to use … but it’s about to get a whole lot easier.

It’s currently testing new business tools, including an analytics dashboard, that will allow businesses to better understand their audiences. These tools will echo existing tools available to Facebook Page owners and available through Twitter analytics, and should enable businesses on Instagram to find out what works with its audience and what doesn’t.

More Advertising Opportunities for Facebook Stock

Instagram users will soon have access to an analytics dashboard that provides information about follower demographic and activity, total reach and information about which posts were most engaging.

This information helps solve two major problems for advertising on Instagram. The demographic data helps improve businesses’ abilities to target new users with their ads, and the post activity helps them determine what kind of creative content produces the best results.

Twitter CFO Anthony Noto repeatedly mentioned to analysts on the company’s most recent earnings call that it’s focused on targeting, creative and measurement in order to improve its standing with small direct-response advertisers. He believes those three areas are the key to getting Twitter to grow its relatively small active advertiser base. FB seems to agree, and has taken steps to improve them on Instagram as well as its flagship platform.

FB Stock Investors Need More Businesses on Instagram

Many businesses lack a strong presence on Instagram. Providing more analytics helps a business quickly get up to speed on who its audience is and what they like. That ought to help more brands and small businesses establish a greater presence on the network.

Over the next two years, eMarketer expects the number of businesses using Instagram to more than double, surpassing Twitter. Twitter recently told investors on its earnings call that it has identified 9 million businesses on its platform, which indicates Instagram has somewhere around 4.5 million, according to eMarketer’s data.

Instagram already has over 200,000 advertisers despite having about half the number of businesses on its platform as Twitter, putting its conversion rate around 4.5%. Facebook has 3 million active advertisers out of 50 million businesses with Pages on the network, putting its conversion rate around 6%.

While Instagram’s conversion rate is already relatively high (Twitter is converting at less than 1.5%), the new analytics could help convert at a rate similar to Facebook.

So, not only will Instagram benefit from a deluge of new businesses joining the network, it ought to start converting those new users into advertisers at a higher rate thanks to the analytics tools it’s building.

Facebook stock investors could see 600,000 active advertisers or more on Instagram within the next two years. While ad inventory isn’t as plentiful on Instagram as Facebook (since users don’t spend as much time in the app), ad spots are already reportedly seeing higher average prices than on Facebook.

That means Instagram could realistically provide a significant amount of revenue to Facebook stock in the very near future.

As of this writing, Adam Levy held no positions in any of the companies mentioned.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/facebook-stock-fb-instagram/.

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