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How Instagram Could Become an $5 Billion Business, But Not Much Bigger

Instagram, the photo-sharing app, is ramping up its advertising, and one prediction came in Friday about just how much money it could generate for its parent company, Facebook Inc.

The answer: a significant but not necessarily game-changing amount for Facebook, the social-media giant.

Facebook purchased Instagram in 2012 for what was then an eye-popping valuation of $1 billion. Using assumptions based on conversations with digital media executives and other industry research, MoffettNathanson analysts said Instagram’s revenue could grow to $600 million over the next 12 months, to $1.8 billion to $3.7 billion within two to three years, and ultimately to about $5 billion a year in sales.

A Facebook spokesperson declined to comment.

Here’s how MoffettNathanson got to these numbers: The photo-sharing app reaches more than 300 million users. Based on what Facebook CEO Mark Zuckerberg said on his most...