Facebook shares drop after Instagram co-founders resign

Josh Edelson | AFP | Getty Images

Instagram CEO Kevin Systrom speaks at Facebook’s corporate headquarters during a media event in Menlo Park, California on June 20, 2013, where Facebook announced the introduction of video for Instagram.

Facebook shares are likely to fall significantly in the short term due to the departure of two key executives, according to J.P. Morgan.

On Monday, the New York Times first reported the co-founders of Instagram, Kevin Systrom and Mike Krieger, both resigned from Facebook and plan to leave the company. Facebook later confirmed the departures.

Shares of Facebook are down 2.7 percent in Tuesday’s premarket session.

“We believe their departure comes as a surprise given Instagram’s success and its growing importance within Facebook,” J.P. Morgan analyst Doug Anmuth said in a note to clients Tuesday. “We look for additional color in coming days and weeks, but in the near-term, we expect FB shares to come under meaningful pressure from the departures.”

The analyst noted Instagram has more than 1 billion monthly active users. He estimated the photo-sharing app will generate about $7.5 billion of sales for Facebook this year and represent 14 percent of the company’s ad revenue.

“We believe Instagram has been a strong growth driver for FB and has played a critical role in retaining younger users within the group of FB platforms and in competing w/Snap,” the analyst said.

Anmuth maintained his overweight rating and $195 price target for Facebook shares in the report.

— CNBC’s
Michael Bloom
contributed to this story.