Facebook's (NASDAQ:FB) billion-dollar acquisition of Instagram in 2012 seemed utterly insane at the time. The photo/video sharing service had just a handful of employees back then and less than 30 million registered users. In the years since, Facebook has executed incredibly well with growing Instagram, which is well on its way to becoming Facebook's fourth billion-user platform, alongside Facebook, WhatsApp, and Messenger. Instagram hit 800 million monthly active users (MAUs) in September, meaning it will likely announce 900 million MAUs any day now based on its trajectory.

At least one Street analyst is predicting that Instagram will cross the billion-user threshold later this year.

Instagram interface displayed on two different phones

Image source: Instagram.

Instagram revenue might double this year

Tech Trader Daily reports that KeyBanc analyst Andy Hargreaves is reiterating an overweight rating on Facebook shares today, alongside a lofty $245 price target. That would represent nearly 30% upside from today's close, and meaningfully above the record $195.32 price set earlier this year before the Cambridge Analytica scandal broke. Hargreaves believes that Instagram could potentially hit 1.1 billion MAUs by year's end, which would help revenue double to $8.9 billion. Facebook does not disclose Instagram revenue, so investors have to rely on third-party estimates when evaluating the growing service.

Instagram has emerged as Facebook's primary outlet for replicating Snap's Snapchat, as both services fundamentally revolve around sharing visual content like photo messages and videos. With 2 million active advertisers, Instagram still has a smaller advertiser base than Facebook's 5 million, but Instagram's advertiser base is growing rapidly. It doubled that advertiser base in just five months last year.

Looking further out, Hargreaves is modeling for Instagram to bring in a whopping $22 billion in sales in 2022, which would represent a compound annual growth rate (CAGR) of 25%. Instagram could have 1.4 billion users at that point, according to the analyst.

Instagram was a steal

With the benefit of hindsight, the Instagram acquisition has turned out to be a blockbuster deal. Unlike other services that Facebook arguably overpaid for, Instagram has already more than made up for its purchase price, which actually ended up being less than $1 billion ($715 million) due to market fluctuations, as Facebook used its stock as currency for the deal. Instagram also has huge potential as an e-commerce platform. For once, Snap is copying Instagram.  

There are some potential threats that could derail Instagram's growth, such as VSCO, the subscription-based ad-free photo-sharing service that is gaining traction among younger demographics. VSCO just recently surpassed 1 million paid users, an important milestone but a rounding error in the context of Instagram's user base. Whether or not a subscription-based model resonates with users, particularly in light of all of Facebook's privacy scandals, remains to be seen.

Besides, if there's one thing we know about Facebook, it's that the company will try to acquire any burgeoning social media platform that looks promising. Facebook is essentially a social media conglomerate. Instagram remains one of the most promising properties in that portfolio, but there will undoubtedly be more.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.