Two years ago, Facebook Inc (FB) announced its $16 billion deal for WhatsApp, a top mobile messaging app (when the deal closed, the amount came to about $22 billion). It was a bit odd and yes, it seemed kind of excessive. But yet again, FB CEO Mark Zuckerberg showed that he has a pretty good knack for what’s going to be the next big thing: It appears that messaging fits the bill.
So what should you expect with messaging for FB?
Well, if anything, the opportunity may actually be bigger than social networking. This is the conclusion according to BI Intelligence, which stated the following in a recent report:
“Users around the world are logging in to messaging apps to not only chat with friends but also to connect with brands, browse merchandise, and watch content. What were once simple services for exchanging messages, pictures, videos, and GIFs have evolved into expansive ecosystems with their own developers, apps, and APIs.”
The growth in messaging also is showing no signs of flagging. In fact, eMarketer forecasts that the user count will go from 1.4 billion in 2015 to 2 billion by 2018, coming to roughly 80% of the smartphone population.
The good news for Facebook stock is that WhatsApp and Messenger are among the top five messaging apps in the world (the others include WeChat, Line and Snapchat). Consider that the user base for WhatsApp is nearly 1 billion and Facebook Messenger has about 800 million users.
Now there are certainly a variety of ways to monetize these platforms. For example, FB could make it easy to pay for local services, such as an Uber ride or there may be funky opportunities, say with the purchase of avatars or digital stickers.
Yet there are other categories that may not be so obvious for messaging, such as for a better alternative to the traditional app store. This is the opinion of Evercore ISI analyst Ken Sena, who recently boosted his price target on Facebook stock from $140 to $150. He thinks that the existing dominant app stores of Apple Inc. (AAPL) and Alphabet Inc (GOOG, GOOGL) are a “dead end” for app publishers. After all, only a handful of apps get much of the traffic.
FB Messenger: The Future of Facebook Stock?
But Sena believes that FB will leverage cutting-edge technologies, like machine learning and artificial intelligence, to build a better engine to distribute mobile apps. What’s more, a key advantage will also be the huge trove of demographic information of its user base, which can allow for better personalization.
Something else: Sena considers that WhatsApp and Facebook Messenger can be extremely effective with customer support services as well. This could represent a market opportunity of over $60 billion, which would certainly move the needle for Facebook stock.
Now all this does not mean that WhatsApp and Facebook Messenger will quickly crank up the monetization. Let’s face it, Zuckerberg is fairly disciplined — and he always gives priority to the user experience. So in the meantime, expect the core business of advertising to be the key driver.
But then again, FB is getting an outsized share of this opportunity, given its strong mobile footprint. During the latest quarter, the company reported a sizzling 52% spike in revenues to $5.8 billion, with non-GAAP net income coming to $2.3 billion. However, the messaging opportunity means that there should be lots of runway for growth.
In other words, for investors looking for a solid long-term bet on mobile, Facebook stock still looks like a winner.
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.
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