Facebook Inc (NASDAQ:FB) stock will gain from WhatsApp's monetization plan.
After a wait of over three years, social networking giant, Facebook Inc (NASDAQ:FB) is all set to monetize its multibillion dollar acquisition, WhatsApp. Facebook had acquired the free messaging company back in 2013 for a massive $19 billion. By paying a hefty sum of $19 billion, including $4 billion in cash, Facebook had made the headlines back then. Since then, under Facebook's watch, WhatsApp as a platform has seen tremendous success. WhatsApp's monthly active users (MAU) have grown more than 6X from 200 million in April 2013 t0 1.3 billion in July 2017, a CAGR of 56.5%!
The platform also enjoys strong brand loyalty. WhatsApp has 1 billion daily active users. That means as high as 76% of WhatsApp’s monthly users come back daily. WhatsApp users now send over 55 billion messages per day, including 4.5 billion photos and 1 billion videos.
However, the platform per se has not been making any money, for several reasons. WhatsApp and its parent Facebook were not immediately concerned with generating revenue on the platform. They were happy to just see the MAU numbers grow at a rapid pace. Their core business, the Facebook.com platform, was anyways churning out billions of dollars every quarter.
But with the ad load on the core platform forecasted to slow down, the pressure on Facebook to monetize its other properties has been growing. And the company has bee experimenting with several ideas. Yesterday, in a blog post, WhatsApp finally announced a plan for monetizing the platform. As discussed earlier, WhatsApp will is launching a commercial messaging service called WhatsApp for business. In Yesterday's blog post, the company said:
"We're building and testing new tools via a free WhatsApp Business app for small companies and an enterprise solution for bigger companies operating at a large scale with a global base of customers, like airlines, e-commerce sites, and banks. These businesses will be able to use our solutions to provide customers with useful notifications like flight times, delivery confirmations, and other updates."
Companies in Brazil, Europe, India and Indonesia are testing the free services. Users must “opt in” to be contacted by a business. If you see a green badge next to a contact's name, it means that WhatsApp has verified that the phone number of this contact belongs to a business account. Gurgaon, India, based health-care startup 1mg, which sells prescription medications online has currently signed up for the program. If an order sent to 1mg lacks necessary details, like documentation of a prescription, 1mg staff can send customers a message via WhatsApp asking them to provide an image of the document. 1mg’s fulfillment rate for such orders has nearly doubled since implementing the pilot. The experience has been good till now. WhatsApp could make money by charging the companies subscription fees for using the API and sending ad broadcasts to their existing clients.
Will WhatsApp take the advertising route?
WhatsApp famously has a policy of not allowing advertisements on the platform. In this blog post dated June 18th 2012, the company used some strong words, to tell why it doesn't allow advertisements on its platform. "No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they’ll see tomorrow .... Advertising isn’t just the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought." the company had written on the blog.
However, there are speculations that the company may revisit its no advertisement policy after all. According to the Wall Street Journal, WhatsApp COO Mr. Idema didn’t rule out the possibility of WhatsApp showing ads to users at some point in future but said the focus was now on connecting businesses and users. And if WhatsApp plans to show ads in future, it has a perfect feature which could allow it to do so. WhatsApp Status, a version of Snapchat Stories, was launched just this year and now has 250 million daily active users in spite being a secondary tab. It is ironic how Facebook has copied "Snapchat Stories" and turned into a great success on Instagram and now on WhatsApp while Snapchat is struggling. If ever WhatsApp intends to allow advertisements, WhatsApp status could be the right place to do so. WhatsApp Status could be a natural home for vertical video ads just like the ones on Instagram. WhatsApp is also planning to launch a peer-to-peer payment service in India.
Facebook stock is facing headwinds, but still a good long term buy.
There has been a lot of commentary about the "ad load" saturation and how it could affect Facebook's revenue growth. The company itself has emphasized this in the last few earnings calls. However, it has also been taking steps to generate revenue from other sources including video content and monetizing its other properties such as WhatsApp and Messenger. Facebook is also looking to diversify into hardware. Facebook Inc is planning to make a home-based video chat device. All in all, Facebook still has several growth drivers. Facebook stock is among our best stocks to buy from the tech sector which have outperformed the Nasdaq by over 140%.
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