Facebook (FB) Surges over Plan to Run Ads on Instagram

The stock price of Facebook (NASDAQ:FB) increased nearly 4% to $51.04 per share after its plan to sell advertising space on Instagram in the next two months was disclosed.  The shares of the social network giant climbed to its current trading price from $18.80 a share over the past 52-week range.

Facebook’s plan to monetize Instagram was revealed in a blog post, which reads: “We have big ideas for the future, and part of making them happen is building Instagram into a sustainable business. In the next couple month, you may begin seeing an occasional ad in your Instagram feed if you’re in the United States. Seeing photos and videos from brands you don’t follow will be new, so we’ll start it slow.”

The announcement indicated that Facebook’s Instagram team will “focus on delivering a small number of beautiful, high-quality photos and videos from a handful of brands.” These brands are already members of the Instagram community. Instagram said that 150 million people are already capturing and sharing their moments on the site.

Facebook price target upgraded to $58

The move of the social network giant to monetize its photo-sharing platform prompted Sterne Agee analyst Arvind Bhatia to raise its price target for the stock to $58 per share.

In a note to investors, Bhatia wrote that Instagram is “now well positioned to start monetization.” He believed that the photo-sharing platform has the ability to “ultimately command a premium” to Facebook ads, but he thinks it would take some time.

Bhatia estimated that advertisement on Instagram could generate additional $400 million revenue for Facebook over the next three years, and additional $400 million once it starts running ads outside the United States. He projected that the social network giant will start rolling out ads internationally in the second half of 2014.

Third Quarter Earnings Estimate

Facebook is scheduled to report its third quarter financial results for fiscal 2013 after the market close on Wednesday, October 30. Based on data compiled by Bloomberg, the social network giant is expected by Wall Street analysts to deliver $0.18 earnings per share and $1.9 billion revenue.

During the second quarter, the social network giant reported $0.19 earnings per share on $1.8 billion revenue, up from $0.12 earnings per share on $1.1 billion revenue in the same period a year earlier.