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Instagram Is a Bigger Piece of Facebook's Revenue Than You Think

By Evan Niu, CFA - Feb 5, 2020 at 9:00AM

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The popular photo- and video-sharing service generated more ad revenue last year than YouTube.

Facebook (META 2.03%) has long resisted giving investors granular details regarding how much money Instagram brings in. The social networking behemoth has executed incredibly well on growing the service, which it acquired in 2012, into a billion-user platform that now has e-commerce opportunities. Jefferies estimated early last year that the popular photo- and video-sharing platform would generate $14 billion in revenue for 2019, which was around 20% of how much total revenue Facebook was expected to generate.

Instagram has reportedly blown past that estimate.

Three smartphones displaying Instagram Stories with a cat shooting lasers out of its eyes

Image source: Instagram.

Instagram is a bigger business than YouTube

Bloomberg reports that Instagram generated a whopping $20 billion in ad revenue last year, which would represent nearly 30% of the $69.7 billion in ad sales that Facebook posted. (Facebook also had a little over $1 billion in other revenue.) When Facebook first bought Instagram for around $700 million, Instagram's revenue was precisely $0.

For comparison, Alphabet (GOOG -0.28%) (GOOGL -0.27%) just disclosed YouTube revenue for the first time ever this week as part of its fourth-quarter earnings. The dominant video service brought in $15.1 billion in ad revenue last year. That means Instagram, which was founded in 2010, is already larger than YouTube, which was founded in 2005.

In no uncertain terms, Instagram has been a blockbuster acquisition, despite the initial investor skepticism when Facebook first announced the deal; Instagram only had about a dozen employees back then. That's especially true compared to WhatsApp: The tech giant paid over 20 times more for the messaging platform and has been struggling to monetize it.

Keeping it in the family

The news comes as Facebook has been shifting its financial reporting to emphasize its broader family of platforms over any individual service. The company now discloses family daily active people (DAP), family monthly active people (MAP), and family average revenue per person (ARPP) in addition to the comparable metrics it has long provided for the core Facebook platform.

However, Facebook is also very purposefully obfuscating Instagram revenue: Both Facebook average revenue per user (ARPU) and family ARPP include "all sources of revenue" even as those sales are spread across different user metrics. The company justifies this by noting that most Instagram users are also Facebook or Messenger users.

"While [Facebook] ARPU includes all sources of revenue, the number of [monthly active users] used in this calculation only includes users of Facebook and Messenger as described in the definition of MAU above," Facebook wrote in its most recent annual report. "The share of revenue from users who are not also Facebook or Messenger MAUs was not material."

As Instagram's financial importance continues to grow, Facebook will have an increasingly difficult time explaining why it won't share more details regarding Instagram with investors.

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