Another Reason the Hype Surrounding Facebook, Inc's Instagram Is Warranted

By Markets Fool.com

While some industry pundits and Twitter fans pooh-poohed the news late last year that Facebook's Instagram had grown its monthly average users (MAUs) to over 300 million, there's no denying the service's impact, nor the rapid pace it reached the milestone. However, some denied that users is the metric to focus on. In a now-infamous rant, Twitter co-founder and board member Evan Williams made clear in December 2014, "Twitter makes a hell of a lot more money than Instagram, if that's what Wall Street cares about."

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And he's right -- for now.

During Facebook's recent Q1 2015 earnings call, CEO Mark Zuckerberg deftly side-stepped the question of when Instagram would take the wraps off its advertising solutions, particularly the new video spots. Zuckerberg isn't quite ready to enlighten investors as to when Instagram will ramp up its monetization efforts and move toward becoming the $35 billion property some are projecting it is. But what we do know is that Instagram is growing by leaps and bounds, and from an advertiser's perspective, it's not just how many MAUs, it's the demographics of those new users that's exciting.

Who are these people?
Facebook's own MAU addition of 50 million in Q1 put to bed the notion that its top-line user growth was becoming stagnant. But that hasn't prevented some industry pundits from suggesting that for America's teens, Facebook is viewed as, "my parents' social media site." A recent study demonstrates that's not quite the case, but there's no denying that among our youth, Instagram is an overwhelming success.

According to research from GfK and the Pew Research Center, Facebook remains the most popular social media site among U.S. teens, with 71% saying they use the site. Facebook's popularity -- despite the impression it's for the older crowd -- isn't surprising given its size and scope. However, the number of U.S. teens using Instagram, particularly older teens, was a bit of a (pleasant) surprise in this survey.

In addition to gender, the research broke teens into two groups: 13-to-14-year-olds, and 15-to-17-year-olds. As a group, 52% of U.S. teens use Instagram, according to the Pew research, and interestingly, the data swings dramatically toward female teens. A whopping 61% of U.S. teen girls are active Instagram users, compared to 44% of boys. Older teens of both genders are even more likely to use Instagram, particularly girl's ages 15-17.

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Of the older female teen group, 64% are actively using Instagram, and over half U.S. boys in the 15-17 age range use the site regularly, according to the report. eMarketer says Instagram's rapid growth isn't slowing any time soon. In fact, by 2019 it estimates that over 75% of America's teens will access Instagram monthly.

So what's the big deal?
Such strong teen demographics are an ideal target for advertisers that already pour billions of dollars annually into marketing to America's teens. Why? The teens of today have more discretionary income than past generations, and they're not afraid to spend it.

Also, there's no demographic group around that will "spread the word" when they find something they like faster and more efficiently than teens. While difficult to determine just how much teens spend, data from years ago -- that's likely increased dramatically since -- suggested teens spent upward of $200 billion annually.

Now add into the demographic profile mix Facebook's unequaled ability to gather, analyze, and ultimately utilize data to target relevant ads to its users, or what Facebook COO Sheryl Sandberg calls its "people-based marketing.

Of course, Instagram has become much more than the little photo-sharing site it was when Facebook acquired it, but visual content remains an integral part of the user experience. And visually rich content is perfectly suited to Facebook as evidenced by its commitment to incorporate video across all its sites, to enhance the experience and generate ad revenues. Facebook CFO Dave Wehner wouldn't give specifics on the amount of video-specific ad revenue so far this year, but there's no denying that it's quickly becoming the digital marketing solution of choice.

It's no wonder Zuckerberg is asked about Instagram each quarter: The revenue possibilities are endless. By no means would America's youth be able to take all the credit for Instagram's journey to the aforementioned $35 billion estimated valuation, but they'll play a key role along the way.

The article Another Reason the Hype Surrounding Facebook, Inc's Instagram Is Warranted originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.