Uncertainty clouds Facebook’s future over Instagram founders’ exit
Founders of Instagram, the photo-and-video app that Facebook agreed to buy shortly before its 2012 IPO, are leaving the company. It was reported that the founders, Kevin Systrom and Mike Krieger, grew frustrated as Facebook impinged on their autonomy, raising concerns over the future of Facebook platform.
Shares fell as much as 2.6 percent at the open and are hovering around the lowest level since April, when the stock was rocked by a data breach scandal. Meanwhile, investors in peer Snap Inc. are taking advantage of Facebook’s woes, sending shares up as much as 5.3 percent.
JPMorgan, tech analyst Douglas Anmuth, says the departures come as a surprise given Instagram’s success and its importance to Facebook; notes Instagram has played a key role in retaining younger users within Facebook platforms and in competing with Snap Anmuth expects shares to see “meaningful pressure” in the near term; speculates the departures could be related to Facebook management “pushing Instagram hard for both user growth and monetization”
Having the Instagram founders walk out the door — shortly after the WhatsApp founders grew frustrated and did the same — does not project the image of a Facebook on sure footing.
The company also seems to have been initially caught off guard by the news of the Instagram founders’ departure, first reported by the New York Times on Monday night. It took the company a little while to issue a bare-bones public statement. Again, the time lag does not project, “We got this.”But the blow to Facebook is far more than optics. Mark Zuckerberg, Facebook’s CEO, made a claim recently that Instagram grew far faster under Facebook’s corporate umbrella than it could have if Instagram had stayed an independent company.
Bloomberg Intelligence, Jitendra Waral and Sean Handrahan note that Instagram is “key for offsetting Facebook’s growth concerns” amid rising regulatory risks, so the resignations of the platform’s co-founders raise uncertainty on the monetization timeline and execution.The departures may also drag on Facebook’s near-term revenue-growth expectation, as they added that there might be possible margin compression at Facebook in the second half of the year as spending picks up on efforts to improve data quality and support its WhatsApp and Messenger platforms.
