Unbundling Strategy Could Drive Facebook Valuation

  • Facebook has consciously unbundled its core website and also acquired valuable properties over the last couple of years.
  • The strategy has led to a portfolio of apps including Messenger, WhatsApp and Instagram, which could be an envy of competitors.
  • The monetization potential of each of these could lead to significant growth in revenues and could drive Facebook valuation.

Mark Zuckerberg has consciously been unbundling Facebook (NASDAQ:FB) website into multiple apps optimized for the mobile platform. The result has been a constant increase in Facebook average revenue per user (ARPU), revenue and earnings growth for Facebook.

Quoting Zuckerberg from the Q1 2014 earnings call;

“Our strategy for connecting everyone is based on two approaches. The first is about giving people new apps for sharing different kinds of content with different people.”

The focus on multiple apps designed for the mobile platform has today resulted in a portfolio of apps, each of which is a huge opportunity on its own. Zuckerberg's vision has today led Facebook to be at the center of online social media with its Instagram, WhatsApp, Messenger and Facebook mobile apps. Each of these apps has a huge user base, on a standalone basis.

MAU's (in millions) Annual revenue potential ($ in millions) Average revenuepotential($, in millions)
Twitter ARPU ($4.41) Facebook ARPU ($8.78)

Messenger 500 2205 4390 3297.5
Instagram 200 882 1756 1319
WhatsApp 600 2646 5268 3957

When comparing Facebook versus Twitter, both being popular social platforms, the micro-blogging site has 284 million monthly active users (MAU’s) and a market capitalization of 26.55 billion. Twitter's trailing twelve month (TTM) ARPU is only $4.41, compared to $8.78 for Facebook.

Using the TTM ARPU of Facebook and Twitter as a point of reference, Facebook’s various mobile apps could be generating billions of dollars in revenues.

On a comparative note, Twitter generated $1.7 billion in last twelve month (LTM) revenues whereas Facebook’s LTM revenue came in at $11.2 billion. If Facebook manages to replicate the monetization success of its Facebook core app across its other three properties, each of these could generate billion dollar revenues.

Valuation of Facebook properties

Using the above derived revenue numbers for Facebook and LTM price-to-sales valuation multiple of 17.7, we arrive at the following valuations for the three properties of Facebook.

Average revenue ($ in billions)

Valuation at Facebook P/S ($ in billions)

Messenger

3.3

58.37

Instagram

1.32

23.35

WhatsApp

3.96

70.04

Conclusion

Facebook’s unbundling strategy has led to a portfolio of apps with huge user bases. The huge user base of each of these comes with a potential monetization opportunity, which could help Facebook grow its revenues and also fuel Facebook valuations over the coming years. Considering that Facebook’s management has excelled in monetizing the core Facebook app, the successful monetization of other properties is a high probability.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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