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Facebook CEO Gains More Control on Instagram as Founders Exit

Zacks Equity Research
Updated

Instagram co-founders as well as CEO and CTO, Kevin Systrom and Mike Krieger are leaving Facebook FB, which acquired the photo sharing app for $715 million in 2012.

Although the duo didn’t specify any reason behind their exit, it is widely believed that Facebook CEO Mark Zuckerberg’s strategy to gradually curb Instagram’s autonomy led to the decision.

Following the news, Facebook shares were down more than 2% in pre-market trading. The stock has lost 6.2% on a year-to-date basis compared with the S&P 500’s rally of 9.2%.



 

Mark Zuckerberg Gains More Control on FB Divisions

The reshuffle that followed the departures of WhatsApp founders, Brian Acton and Jan Koum, allowed Mark Zuckerberg to appoint executives of his own choice in both WhatsApp and Instagram, two largely autonomous divisions.

Facebook’s Chief Product Officer (CPO), Chris Cox was given the responsibility to oversight both the divisions. Moreover, Instagram’s VP of Product, Kevin Weil was moved to lead Facebook’s new blockchain team and was replaced by Adam Mosseri.

Both Chris Cox and Adam Mosseri are known for their proximity to Mark Zuckerberg.

Reportedly, the reshuffle also intended to put more pressure on Instagram management to contribute more as Facebook’s core platform slowed down.  

Moreover, CEO Kevin Systrom clashed with Mark Zuckerberg over Instagram’s direction. According to TechCrunch, those clashes involved the “Sharing back to Facebook” feature.

What’s Now in Store for Instagram

It is widely rumored that Adam Mosseri will replace Kevin Systrom as the new CEO of Instagram, strengthening Mark Zuckerberg’s control over the division.

Instagram is Facebook’s fastest growing division based on its more than 1 billion monthly users and 500 million daily users. Further, 400 million people use Instagram stories on a daily basis.
 

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Instagram has emerged as an important cash cow for Facebook. The company has added a plethora of new features like GIF stickers, type mode, “Focus” camera format, emoji slider sticker, “Mute” in feed, IGTV, video chats, topic tab in Explore and soundtracks on Stories to make the platform exciting and engaging.

These features have improved Instagram’s competitive position against Snap SNAP, parent of Snapchat, which has just 191 million users. The launch of IGTV, a longer form of video hub, will help Instagram compete better with Alphabet’s GOOGL YouTube division and Twitter TWTR.

Facebook, which currently has a Zacks Rank #4 (Sell), is now looking for ways to monetize Instagram Stories and adding e-commerce features to the platform is a step toward that direction. Market research firm, eMarketer expects Instagram to generate $5.48 billion in U.S. ad revenues in 2018, up 70% year over year.

Conclusion

The untimely exit of the co-founders of Instagram now puts the onus on Mark Zuckerberg and his trusted lieutenants to perform.

In recent times, Facebook has witnessed sluggishness in its user base growth rate. According to latest eMarketer data, the platform is estimated to lose two million users aged 24 or younger in 2018.

On the other hand, Instagram and Snapchat have become attractive to this particular domain. eMarketer expects Instagram to add 1.6 million users aged 24 or younger in 2018. However, Snapchat is expected to surpass this number by adding 1.9 million users of the same age group. This doesn’t bode well for Facebook investors.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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