Neither CEO Mark Zuckerberg nor COO Sheryl Sandberg would disclose specifics last quarter, and are they are unlikely to when Q3 financial results are announced on Nov. 4, but Facebook's (NASDAQ:FB) Instagram property is already beginning to pay dividends. That's the good news. The better news is that Instagram is expected to become a force in its own right in the coming months and years.
Of course, the growth of yet another social media advertising alternative could hit the struggling Twitter (NYSE:TWTR) where it hurts. The one saving grace for Twitter has been its revenue growth, which was up again last quarter by an impressive 61% year over year to $502 million. Though sales haven't negated concerns surrounding Twitter's anemic monthly average user (MAU) growth entirely, it's given diehard tweeters something to cling to.
But if new data proves correct, even Twitter's ad revenue pops may be in jeopardy thanks to the ongoing popularity of Facebook, and an expected shift of marketing dollars to the now fully monetized Instagram.
A whopping 88.2% of companies in the U.S. already use some form of social media to market their services, which may be a bit worrisome to some investors. After all, where will sales come from if so many marketers are already spending a portion of their budgets on social media spots? Thankfully, there are still several avenues of revenue growth available.
In addition to increasing ad rates thanks to better analytics helping deliver the right ad to the right person at the right time, not to mention high-priced video spots, both Facebook and Twitter should continue to see improved sales. As an example, CFO Dave Wehner mentioned during Facebook's Q2 conference call that mobile ad rates more than doubled last quarter. And then there's Instagram.
This year, Instagram is expected to add about $600 million to Facebook's top line, and that figure will grow to nearly $1.5 billion by next year -- which is pretty remarkable considering the monetization wraps were taken off just a quarter ago. It's no wonder industry pundits are expecting such big things from Instagram, given that nearly a third of U.S. companies with 100 or more employees intend to use the site for marketing purposes this year. And that's just the tip of what will be an extremely profitable iceberg.
By next year, according to eMarketer, about half of those same U.S. companies will market their wares on Instagram, and that's expected to grow to over 70% in just two years. What makes that market share telling is that by 2017, Instagram will be used for marketing purposes more than Twitter, pushing the tweet master further down the digital ad revenue ladder.
That's just not fair
As large as Facebook is relative to other social media platforms like Twitter, it is still growing its share of advertising spend. This year, Facebook is expected to garner 64.8% of all social network marketing dollars -- up from 64.4% in 2014 -- and Instagram is just getting ready to make its splash. Make no mistake, Twitter will continue to command its share of ad revenue, but the rate of its growth will become increasingly slow thanks in large part to a shift to Instagram.
As Facebook stock breaks the vaunted $100 per share plateau, Twitter continues to meander. Certainly concerns surrounding Twitter's MAUs have played a key role in its stock price performance year to date -- it's down 16% as of this writing -- and that's not expected to change this quarter. But sluggish MAU growth may not be the biggest hurdle Twitter co-founder and new CEO Jack Dorsey confront in the months and years ahead.
As if fighting what has been an ongoing, losing battle for digital marketing revenue with Facebook wasn't difficult enough, it appears Twitter will soon be looking up at Instagram, too.