How Instagram Makes Money

In April 2012, Meta (formerly Facebook) acquired the photo-sharing app Instagram for around $1 billion in cash and stock; many Wall Streeters were puzzled. At the time, Instagram was less than two years old, boasted an employee workforce of 13, and had no revenue.

According to a Bloomberg Intelligence report, Instagram was worth $100 billion by 2018. It had just been announced a few days earlier by Instagram they had reached the 1 billion active daily users milestone.

In 2019, Instagram generated $20 billion in advertising revenue, according to a Feb. 2020 Bloomberg report. In other words, Meta got a cash cow for a chicken feed price. The app now generates billions of dollars in revenue.

Key Takeaways

• Instagram is a photo and short video-sharing app used by millions of people.
• Instagram’s strengths include attracting a young and global user base.
• Instagram makes its money from advertising and has a high rate of revenue growth.
• The app makes up a large share of advertising revenues for its parent company, Meta.

Instagram’s Financials

It’s well known that Instagram and its parent company, Meta, generate most of their revenue from advertising. What isn’t so well known is how the apps or services it has in each segment contribute to its profitability.

Meta works hard to disguise revenues earned by its subsidiaries, but there have been documents released in court proceedings that shed some light on Instagram’s contributions to Meta’s overall revenue.

According to court documents from the Federal Trade Commission’s case against Meta:

Instagram generated advertising revenues of $11.3 billion in 2018, $17.9 billion in 2019, $22 billion in 2020, $32.4 billion in 2021, and $16.5 billion in the first half of 2022.

Using those figures, you can determine how much Instagram could be generating for Meta:

With this information, it can be assumed that Instagram contributed a somewhat similar amount in its most recent quarter, equal to 29% or more of Meta’s totals (these are probably low):

• Q1 Net Income: $3.6 billion
• Q1 Growth in Net Income: 130%
• Q1 Revenue: $10.3 billion
• Q1 Growth in Revenue: 30%

Instagram, responsible for more than a quarter of Meta’s income and revenue, likely carried the company through Q1 as advertising on its Family of Apps (Facebook, Instagram, WhatsApp, Messenger) generated all of its operating income and 98% of its advertising revenue, which the company’s statements indicate are 99% of its total revenues.

Instagram’s Strengths

Instagram has several things going for it that are worth their weight in gold to advertisers:

• It attracts a large and youthful audience. About 59% of teen users under 15 and about 70% of teens 15 to 17 used Instagram in 2023.
• Its users click on links. About 130 million monthly users tapped on a commercial link for more details on a product in 2019.
• The platform’s analytics make it easy to see what’s working and popular and what isn’t.
• Instagram’s monthly user base continues growing, giving advertisers many more possible customers.

Important

Instagram is often referred to by its users as “IG” or “Insta.”

Does Instagram Make a Profit?

Instagram generates nearly one-third of Meta’s net income through advertising revenues, so it is profitable.

Does Instagram Make More Money Than YouTube?

Some reports suggest that Instagram makes more than YouTube.

How Much Does Meta Make From Instagram?

Meta doesn’t break down its segments by app name, but an analysis of its latest reports suggests that Meta earned more than $39 billion in revenue in 2023 from Instagram.

The Bottom Line

Like many big names in social media, Instagram started as a fun idea without a clear path to profit. For Instagram and Meta, advertising has become the monetization model.

Because it is fundamentally a visual app, Instagram is a natural platform for branded advertising. As computing moves away from the desktop, especially among millennial users, Instagram is well-positioned to remain a dominant platform for advertising in the 21st century.

Read the original article on Investopedia.