Analysts eye 'lucrative' future for Instagram video

Instagram has no current plans to sell ads, but that isn't stopping analysts from salivating over the potential of video ads running on the platform and in News Feed.

Kevin Systrom, Facebook savior? The Instagram creator's video tool is giving Facebook analysts hope for a more lucrative future. James Martin/CNET

Facebook's latest gift to users, the addition of video to Instagram, will be the gift that keeps on giving to company investors -- or so the speculation from analysts goes.

Instagram co-founder Kevin Systrom on Thursday unveiled a new video feature for creating and sharing 15-second clips at a press event at Facebook's Menlo Park headquarters. The offering borrows from Twitter's Vine, which has 13 million registered users, and allows people to stop and start their recordings as they see fit. Instagram video, however, comes with filters and works to automatically stabilize footage.

In reports published Thursday, analysts at RBC Capital Markets and Sterne Agee said that video for Instagram should equate to money in the bank for Facebook. The firms expect the social network to use the video offering to monetize the popular application, which is currently devoid of ads, and capitalize on the online video advertising market.

Both firms are also bullish on the product as a whole and view it as a viable challenger to Twitter's Vine.

"The introduction of video will likely make the service more compelling, leading to greater user engagement and also opening the door to lucrative video advertising," RBC Capital Markets Analyst Mark Mahaney wrote.

"Ultimately, we see the opportunity for Facebook to monetize [Instagram video] via video ads in Facebook's News Feed," Sterne Agee Analyst Arvind Bhatia said in the firm's report. "We believe these 15-second videos could prove quite effective/lucrative."

Defending its stance, Sterne Agee cited data from eMarketer predicting that online video advertising spending will surpass $4 billion this year and $9 billion by 2017. RBC Capital said that it expects more of the $200 billion spent on TV advertising each year to migrate to the Web, and anticipates Facebook capturing a large share of the cross-over dollars.

Analysts and investors, though anxious for additional revenue streams, will need to be patient when it comes to Instagram, which has 130 million active users but no ads.

Wednesday, Facebook COO Sheryl Sandberg reiterated, at the Reuters Global Technology Summit, the company's laissez-faire stance on using Instagram to generate revenue. "We all think it makes a lot of sense for Instagram to be focused on growth," she said.

 

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