Facebook (FB) claims that its mobile messaging service WhatsApp now has 900 million active users. Yet still, FB has presented no real monetization plans, nor has it given any hints at how WhatsApp can really provide any sort of real push to Facebook stock.
However, in seeing how fast WhatsApp has grown, where it has grown and what Facebook has done with Messenger, it has become rather evident how WhatsApp will become a big part of the Facebook revenue equation.
On a global scale, Facebook is essentially owning smartphones one app at a time. FB has its core app, Messenger, Instagram and then WhatsApp, all of which are considered top apps by App Annie on both iOS and Android.
With 900 million active users, WhatsApp is one of the most popular apps in the world, but not necessarily in North America. According to Cypress River Advisors, WhatsApp is the preferred messenger app in Africa, Brazil, and India. This gives Facebook a global presence to go along with the success of its own Messenger app here in North America.
In realizing that Facebook has 900 million active users on a single app that are largely unmonetized, investors have to assume that Facebook has something big in mind. To confirm that Facebook sees big things for the future of WhatsApp, look no further than the $20 billion-plus purchase price it was willing to dish out to take full ownership of it.
How Will Facebook Monetize WhatsApp?
Facebook can’t realistically expect consumers to pay for WhatsApp — not when so many others like WeChat and Line are free. Also, it would be kind of annoying to have advertisements pop up while trying to send or receive a text message. That would probably just sway users back to their carrier’s text messages. Hence, monetization is a delicate goal for Facebook, but thankfully, the answer lies in Messenger.
Facebook unveiled the Messenger Platform earlier this year, and by partnering with companies like The Weather Channel and ESPN, its Messenger app has become an app store within an app of sorts. The idea is to provide users with increased engagement within apps, through Facebook of course, and to increase communication between app owner (ie ESPN) and the user. Where there appears to be a particularly high level of promise is with payments.
One of Facebook’s early retail partners on the Messenger Platform was Everlane. During the unveil of Messenger Platform, Facebook showcased how users can make direct purchases using the Everlane app in Messenger, and then even track their purchase via UPS. Initially, Facebook has said that it won’t charge a fee for payments on Messenger, and that it won’t implement a Messenger Platform-like service on WhatsApp, but my guess is that it will eventually.
Sooner or later, Facebook will have to monetize WhatsApp, and Messenger for the matter, and payments seem like the natural fit. Aside from purchases within Messenger, Facebook also allows users to send money to other users on Messenger. Hence, it is making Messenger almost like a Western Union (WU)-PayPal (PYPL) hybrid.
PayPal has just 165 million users yet is on pace to well surpass $9 billion in revenue this year. Meanwhile, about 75% of Western Union’s $5.5 billion in revenue comes from consumer-to-consumer transactions, and its online consumer-to-consumer business grew 22% during its last quarter.
The point is that Facebook is targeting both PayPal and Western Union’s most lucrative businesses. The only difference is that with Messenger and WhatsApp, it has an unmatched network of users, and if it would add fees to those services, Facebook could quickly generate billions of dollars annually.
With that said, Facebook’s theory has always been to build a large network, get people using a product, then monetize it later. FB did the same thing with its core business, and that’s why it was both late to monetize with ads and in mobile. But at the end of the day, Facebook did so with success.
All things considered, Facebook has a golden opportunity with Messenger, WhatsApp, and payments in general. The big question is not whether Facebook will implement a Messenger Platform like service into WhatsApp, or start charging fees, but rather when. Beyond that, it is very possible that Facebook has something up its sleeves that no one expects.
Since WhatsApp and Messenger are so popular in different regions of the world, FB could streamline currency exchange. Likewise, once it builds a large network of retailers and businesses that are selling goods and services, and consumers who are willing to buy, it might target the payment processing space, thereby challenging Visa (V) and MasterCard (MA) by collecting on the middleman fees that are collected from buyer to seller.
The possibilities are endless, and it’s this realization that all but illustrates why owning Facebook stock for the long haul is such a great idea. In essence, FB should go in the “buy, hold and forget” basket.
After all, when you combine Facebook’s vision and patience with an untapped 900 million user network, good things are likely to happen.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.
