Mark Zuckerberg once said that Facebook Inc (FB) would monetize WhatsApp when the messaging service hit 1 billion users. Well, it has surpassed that mark, and with the company paying $22 billion for WhatsApp a couple years back, investors are anxious to see what FB does, and whether it can make WhatsApp the value that it found in Instagram.
Contrary to popular belief, there are many ways to monetize WhatsApp that could accelerate the company’s growth and drive Facebook stock higher. Let’s look at five such ways.
A Payments Juggernaut
The clearest way for FB to create significant revenue is with payments. The company’s Messenger app already allows for person-to-person money transfers, but with the likelihood of Facebook allowing companies to sell products and services to consumers via WhatsApp, like with the Messenger Platform, there is also a huge opportunity for Facebook to become a legitimate threat to PayPal Holdings Inc (PYPL) in consumer-to-business payments.
With 1 billion users users on WhatsApp, mainly outside the U.S., and about 700 million Messenger users, mainly in the U.S., Facebook has built an ecosystem that could cause turmoil for The Western Union Company (WU) and PayPal, becoming a preferred payment option for both businesses and consumers. And because of WhatsApp and Messenger’s global reach, FB could really perfect global currency exchange, generating billions of dollars in the process.
Display Ads
One way that FB plans to monetize the Messenger platform is by allowing businesses that communicate with consumers to show ads. It seems reasonable, given the similarities between Messenger and WhatsApp, that FB would deploy the same strategy with the latter.
With 42 billion messenges sent daily on WhatsApp, FB has a great opportunity to deliver display ads, thereby accelerating revenue growth and moving Facebook stock even higher.
Video Ads
FB recently disclosed that 250 million videos are shared daily on WhatsApp. That large of a number is almost hard to absorb, but it creates a terrific opportunity for Facebook to show video ads.
Video advertising has already emerged as Facebook’s best business opportunity in the foreseeable future. On mobile devices, video ad spending is expected to grow 50% this year, which bodes well for FB stock, given the surge in video viewing on its application. With WhatsApp being a surprisingly strong platform for delivering videos, it should also be good for delivering video ads.
The FB App Store
During Alphabet Inc‘s (GOOGL, GOOG) last quarter, its Google Play and hardware revenue soared 24% to $2.1 billion, and Apple Inc.‘s (AAPL) iTunes/App Store revenue jumped 26% to a whopping $6.1 billion in its last quarter. In comparison, FB created $5.8 billion of total revenue from all of its businesses combined.
What makes this relevant is that Facebook has its own app store aspirations, with the Messenger platform allowing users to download third-party apps to communicate directly with companies, or add GIF images, among other things. The apps available for FB’s Messenger platform have different functions than those on the App Store for Android, such as taking a photo while sharing weather data from the Weather Channel, or adding a picture from ESPN.
Facebook is not yet earning revenue from its own version of the App Store, which will presumably launch on WhatsApp. But, we’re already starting to see functions of the Messenger platform that can create revenue for FB, some of which could flow into WhatsApp. For example, FB users can now request rides from Uber via the Messenger platform. Eventually, FB may require a small fee from the likes of Uber for bookings that come from Messenger, and allow users to book vacations, order food, or buy event tickets. The possibilities are endless.
Of course, this is later down the road, but the point is that there may be a way for FB to create a legitimate business from apps, while doing so from within an existing app. It sounds strange, I know.
A Threat to Amazon.com, Priceline, and Everything Else?
InvestorPlace writer Tom Taulli first noticed that, because of WhatsApp’s scale and global presence, it could one day become a global e-commerce giant to challenge the likes of Amazon.com, Inc. (AMZN). While WhatsApp will, theoretically, be driven by third-party apps, it is important to note that Amazon is driven mostly by third-party vendors and collects much of its revenue from fees versus the resale of goods.
In retrospect, FB could adopt a similar approach with WhatsApp and Messenger, creating revenue from fees and keeping margins high without having to worry about fulfillment. It could do the same in multiple industries, such as travel, thereby making Messenger and WhatsApp a one-stop-shop for all services and communication with businesses, both small and large.
The Key to Success
What’s most important for Facebook and FB stock is to take things slowly as they pertain to WhatsApp and Messenger. Yes, these are enormous, untapped platforms that FB could generate billions of dollars. However, Facebook has been notorious for monetizing its services slowly.
Facebook got users comfortable on its news feed before showing any ads, then it launched business pages so users could develop a higher comfort level with communicating with businesses before it allowed those companies to promote posts to users who had liked their pages. I suspect FB will adopt the same strategy with Messenger and WhatsApp.
Step one is getting users to communicate with businesses. Step two is to launch additional services, such as payments, and grow the number of businesses that communicate with users. Step three is to incorporate ads, or sponsored material, for businesses to send users. And step four is to become an all-out services platform that combines e-commerce, travel booking, reservations, and communication with both large and local businesses. That’s where the real money will be made, and it’s how WhatsApp and Messenger will drive Facebook stock even higher in the long-term.
As of this writing, Brian Nichols was long AAPL.
