When it comes to monetization, Facebook Inc (FB) is certainly a maestro.
Keep in mind that the company cranked out $4.5 billion in revenues in the prior quarter, up about 41%. Twitter (TWTR), by comparison, was only about to post $569 million in revenues.
Yet FB is far from perfect, as seen with its WhatsApp chat service. This week the company announced that it would eliminate its annual 99-cent subscription fee.
So could this be a sign that the massive $22 billion deal for WhatsApp — which was struck back in October 2014 — is in jeopardy and that FB stock could face some pressure?
Well, let’s take a look.
What WhatsApp Means to FB Stock
First of all, FB has done a marvelous job boosting the user base of WhatsApp. Since the acquisition, the number of users more than doubled to near 1 billion. This is no easy feat, as seen with many other lagging operators like Twitter and Yahoo! Inc. (YHOO).
Next, it appears that the subscription model was not optimal anyway. According to a blog post from WhatsApp:
“For many years, we’ve asked some people to pay a fee for using WhatsApp after their first year. As we’ve grown, we’ve found that this approach hasn’t worked well. Many WhatsApp users don’t have a debit or credit card number and they worried they’d lose access to their friends and family after their first year.”
Besides, the revenues generated from subscriptions have been meager, coming to only about $20 million in 2013.
And something else: FB stock likely got some protection with the WhatsApp deal. How? For the most part, mobile messaging accounts for 91% of time spent by users in the U.S., based on research from ComScore (SCOR). Just imagine if FB missed out on this? No doubt, shareholders would likely have some serious concerns about the future.
Bottom Line for FB Stock
So what will FB use for the WhatsApp business model? So far, the company has provided few details. Although, there is one thing that is clear-cut — that is, there will be no advertising. This has been the mantra of WhatsApp since its founding.
Instead, it seems like a good bet that the company will take a page from the WeChat service, which has dominated China. The company has built a tremendous business by including transactional services on its platform, such as the ability to hail a taxi, order food, book a doctor’s appointment, buy tickets and so on. All this is powered by third-party apps on WeChat, as well as a payments system.
In other words, the service has become the killer app for ecommerce.
As for WhatsApp, it has the massive global scale to do something similar. If anything, the service could eventually be a threat to traditional ecommerce operators like Amazon.com, Inc. (AMZN) and payment firms, such as PayPal Holdings Inc (PYPL). And yes, this could mean a huge monetization opportunity.
Hey, for the fourth quarter, AMZN expects to post revenues of $33.5 billion to $36.75 billion.
So in the end, WhatsApp’s potential monetization may ultimately dwarf the core Facebook advertising business. Oh, and FB stock is looking more reasonable now — given the recent correction — with the forward price-to-earnings at about 32X.
All in all, this does not seem out of whack for a company that is positioned to benefit from the megatrend of mobile, especially as the company has standout assets like the Facebook service, Instagram and WhatsApp.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
