Facebook Inc (NASDAQ:FB) recently rolled out Messenger Kids, a junior version of its Messenger app for children under 13, who aren’t allowed to sign up for Facebook or Instagram.
The market doesn’t seem to really care about Messenger Kids. FB stock is up 3.5% since the launch of the app, but the Nasdaq 100 is up 2.4%, so not much out-performance.
But I think Messenger Kids is a big deal. And undoubtedly a reason to buy FB stock for huge long-term gains.
Why? Two major reasons:
- Demand for a messaging app for the 12-and-under crowd is huge.
- Messenger Kids will influence the 12-and-under crowd towards Instagram, Facebook, and Messenger once those children become teenagers.
Let’s break it down further.
Facebook Is Filling a Huge Demand for a Kids’ Messaging App
As smartphone usage proliferates, it isn’t just spreading across. Its spreading down, too.
A decade ago, only about 67% of teenagers even had a cell phone. But times are rapidly changing. Not only almost 90% of teenagers have a smartphone now, but so do many younger kids. In 2012, the average age of a child getting their first smartphone was 12 years. In 2016, the average age dropped to 10.3 years. Today, most children are getting their first smartphone in fourth or fifth grade.
But these young ones with smartphones aren’t tapping into the connected world of instant messaging and social media as much as they could. Only 50% of kids have social media accounts by age 12, compared to 86% of US adults between 18 and 29 years old.
Why the discrepancy? Social media, as it stands, can be a big, scary place for kids. That is why Snap Inc (NYSE:SNAP), Facebook, and Instagram all have 13-and-up age policies.
Essentially, what you’re left with is this huge and growing smartphone user base that is underdeveloped in terms of social media usage.
Messenger Kids fixes that problem in a mature and safe way. The platform is geared toward kids being able to enjoy the fun of social messaging, while simultaneously granting complete control to parents. Kids can communicate through one-on-one or group video chats and messages, but only with parent-approved contacts.
But none of the fun is lost in that process. The app has all the neat features that would attract a young demographic, including kid-appropriate filters, GIFs, stickers, and drawing tools.
By creating a fun app geared for kids that simultaneously grants complete control to the parents, Facebook is strategically targeting a huge demographic that is largely untapped. Growth from Messenger Kids alone could be massive.
Facebook Can Monetize Messenger Kids
The big implication of Messenger Kids is that it might supercharge growth for Facebook’s ecosystem of 13-and-up apps.
Right now, the 13-20 demographic is in love with Snapchat. While Instagram has stolen some of Snapchat’s thunder, Snap is still growing its user base and engagement is still increasing. Clearly, Snapchat is still a formidable competitor in the 13-20 demographic.
But if Messenger Kids is a hit (which it should be), then Facebook would have millions of new 13-and-under users in the Facebook ecosystem. The thing about those 12-and-under users is that they will one day become 13-and-up users, eligible to sign up for Snapchat, Instagram, and Facebook.
With this in mind, Facebook can use Messenger Kids to steer young smartphone users toward its ecosystem of 13-and-up apps, like Facebook, Instagram, and Messenger, and away from Snapchat.
Consequently, if Messenger Kids is a hit, then the whole Facebook ecosystem could get a big boost.
Bottom Line on FB Stock
Messenger Kids is a big deal. Not only is it the first of its kind and addressing a huge and growing demand, but it could also supercharge growth for Facebook, Instagram, and Messenger.
That means Messenger Kids is definitely a reason to buy FB stock.
Trading at only 30x this year’s earnings for 28.25%. multi-year growth prospects, FB stock is still cheap in this market. Consequently, now looks like a good time to buy.
As of this writing, Luke Lango was long FB.