The Meta Platforms (META -2.70%) app Instagram recently surpassed 2 billion monthly active users, adding about 1 billion new ones around the world over the past three years. That's despite stiff competition from TikTok and Snap's (SNAP -1.16%) Snapchat, among others, during that period.

But Instagram has managed to remain a significant source of revenue growth for its parent company in that time, and it could still have a lot of room left to keep it up.

Screenshots of the Instagram app on an iPhone.

Image source: Instagram.

Closing the monetization gap

The amount of money American advertisers spend on Instagram will surpass the amount spent on Meta's core Facebook app this year, according to analysts at eMarketer. They expect Instagram will eventually account for more than 60% of the company's total ad revenue in just a couple of years.

But comparatively, Instagram will still account for less than half of Facebook's global ad revenue next year, the analysts say -- $60.5 billion versus $135.1 billion total. That leaves a considerable gap between the level to which Instagram is monetizing U.S. users versus international users.

Investors shouldn't expect international revenue per user on Instagram to reach the level of revenue per user in the U.S. But what they should expect is for Instagram monetization to catch up to monetization levels of the core Facebook app in each market. And Instagram revenue per user may surpass revenue per user on Facebook, just as it's done in the U.S. where Instagram has been selling ads the longest. As Instagram works on monetizing users in international markets as well as it does in the U.S., it'll fuel revenue growth for Meta.

Still room for user growth

Facebook ended the third quarter with 2.9 billion monthly active users. Across all of Meta's apps -- Facebook, Instagram, Messenger, and WhatsApp -- unique users totaled 3.6 billion for the period. At 2 billion users, Instagram might be the smallest of Meta's family of apps.

That means Instagram can continue to add new users. It might not add another billion users in three years like it just did, but Meta has existing relationships with at least 1.6 billion people who aren't on Instagram.

User growth has notably slowed for the core Facebook app, which increased its user count by just 6% year over year last quarter. But even after hitting 2 billion users on Facebook, the company was able to produce fairly steady user growth. And Instagram is already growing faster than Facebook was when it hit 2 billion users. (It took nearly five years for Facebook to grow from 1 billion to 2 billion monthly active users).

Importantly, Instagram is exhibiting strong user growth despite an increase in competition in the social media space over the last few years with the expansion of TikTok and the reinvigoration of Snapchat.

Increasing user engagement

Finally, the last lever Instagram is still able to pull is increasing the level of engagement among its users. And it appears to be executing well. Earlier this year, Instagram CEO Adam Mosseri said the primary focus of the business is on entertaining its users. Specifically, it's going to emphasize full-screen video, similar to TikTok.

Snap started increasing its focus on entertainment as well around the start of 2019 when it began investing more in Snap Originals and ad formats around the Discover section of the app. Since then, the app has increased its user count by more than 60% from 190 million to 306 million with improving engagement. It's also seen substantial improvements in revenue per user in North America and Europe and great overall revenue growth.

Granted, Snapchat's user base at the start of 2019 was about one-tenth the size of Instagram's today. Still, the potential to increase engagement on Instagram could send its revenue per user even higher -- especially as advertisers shift spending toward newer formats including Stories and Reels, catching up with user behavior.

While 2 billion is a major milestone for Instagram, it's by no means close to the finish line. It could fuel continued revenue growth for investors in the FAANG stock as Meta works on getting its metaverse business off the ground.