A third of Facebook's ad revenue growth now comes from Instagram - and it couldn't come at a better time

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Facebook CEO Mark Zuckerberg

• Morgan Stanley analysts think Wall Street is still underestimating how much Facebook can grow.
• In a research note, analysts at the investment bank set the stock a new price target of $215.
• It's an abrupt turnaround from just a few months ago, when Facebook's share price was getting pummeled in the aftermath of the Cambridge Analytica scandal. And it may be largely due to Instagram.

Facebook's reputation has been battered by the Cambridge Analytica scandal, but Facebook's business is humming. One big reason: Instagram.

The photo-sharing app is turning into an increasingly important money-maker for Facebook.

According to the estimates of Morgan Stanley analyst Brian Nowak, Instagram will account for 36% of Facebook total ad revenue growth in the second quarter. In a research note published on Tuesday, Nowak reckons that ads on Instagram will bring in $3.8 billion in revenue in Q2, and as much as $4.5 billion in Q4.

That's especially important as Facebook's flagship social media service continues to experience a slowdown in the growth of its "ad load" - the number of ads that Facebook inserts into the newsfeed.

The ad load slowdown within Facebook is very deliberate; the company is wary of turning consumers off by barraging them with too many ads. Luckily, Facebook has Instagram and its relatively un-monetized fields of content to pick up the slack.

Morgan Stanley

And whatever reputational damage Facebook's brand may be suffering, Instagram is more popular than ever with consumers. The service recently crossed the 1 billion user milestone, and Morgan Stanley notes that the app's active user growth "inflected" in Q2, as Instagram added 750,000 users per day.

The upshot: The investment bank is pegging its price target for Facebook's stock, which is currently floating around $203, at $215 - and suggests in a best-case scenario it could go as high as $245.

"We believe the Street is still underestimating FB's ability to grow even as ad load slows," Nowak writes.

Facebook doesn't (yet) break out financial results for Instagram, so it's tough to know precisely how big of a contributor it is. But we'll get a sense about how it's doing by assessing the results of Facebook's overall business when it reports its Q2 earnings on July 25.

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