Based on the revenue potential of Instagram and WhatsApp, Citigroup Inc (NYSE:C) has upgraded its valuation of Facebook Inc (NASDAQ:FB)‘s stock. Citigroup Inc has given Facebook Inc a ‘Buy’ rating and has raised the price target of Facebook Inc’s shares to $97 from $91. Mark May of Citigroup Inc was on CNBC to discuss Facebook Inc’s growth potential and Twitter Inc (NYSE:TWTR)‘s place in the big picture.
“At its core we are seeing a lot of strength and opportunity for growth in video advertising for Facebook, as well as opportunities to expand revenue beyond just the core Facebook application; in the areas like Instagram, the messenger app and WhatsApp. […] Instagram is the one that’s probably going to have the most near term opportunity. If you think about Instagram: it has a user base that’s larger now than Twitter. It’s users are significantly more active on Instagram than an average Twitter user is; and both users and engagement are growing faster. […] We think there is a path for Instagram to deliver over a billion in ad revenue next year and continue to grow from there. WhatsApp is probably a longer term opportunity but we also see a multi-billion dollar opportunity for that application as well,” May said.
Twitter Inc’s Periscope has become an instant hit on the mobile web and Twitter must think it will help its user base grow further, but May thinks that after putting Instagram and Whatsapp together, Twitter Inc (NYSE:TWTR) and Facebook Inc (NASDAQ:FB) are not evenly balanced opponents anymore.
“We don’t view it as kind of a war between the two companies. I think there’s a lot of growth overall in digital and internet advertising particularly in the mobile area for both companies to win. Product improvements at Twitter are really important for helping to re-ignite growth in its user base which has been pretty stagnant for the last several quarters. We are noticing some improvements in the product and there is some encouragement that user growth could re-accelerate for Twitter this year. Twitter also has a big opportunity, regardless of user growth, to just do a better job of monetizing the users it has today. We think there is still a lot of upside for that company but in terms of how that would impact Facebook or Instagram; we really don’t see it to be a competitor head-to-head. Like I said, we see the market growing quickly enough to support growth in both companies,” May said.
Instagram and WhatsApp are two acquisitions that will soon start making clear profits for Facebook Inc (NASDAQ:FB) and they will keep doing that for a long time to come. Even though the trends are in favor of Facebook Inc, as May mentioned, they are really in favor of Twitter Inc (NYSE:TWTR) also. As the era of mobile internet unfolds in front of us both Twitter Inc and Facebook Inc have opportunities to grow, taking their share of the growing advertisement dollars.
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