How Much Revenue Can WhatsApp Generate In The Next Five Years?

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FB
Facebook

Facebook (NASDAQ:FB) recently announced that its messaging platform WhatsApp will no longer charge subscription fees and will be a completely free service for its users. The company now plans to introduce tools which will allow users to communicate with businesses via WhatsApp, thus making it the “go-to” app for several services. We believe this is in line with Facebook’s strategy to monetize a platform once it crosses the billion-user mark and use organic interactions between businesses and users as the first step toward monetization.

We expect average monthly users on WhatsApp to increase from the current 850 million figure to nearly 1.3 billion by the end of our forecast period. (The 850 million figure is an average of 700 million users at the end of 2014 and 1 billion at the end of 2015). We also expect WhatsApp to introduce new enterprise-focused features and start generating revenues this year. We estimate WhatsApp’s average revenue per user to be around $4 by 2020. This could yield revenues of around $5 billion for Facebook in 2020, contributing about 9-10% of the company’s total revenues, according to our estimates. fb-1-2

To get an idea of the monetization potential of messaging apps, WeChat- the popular messaging app in China – is being monetized through an array of features such as advertisements, games, online payment functions and in-app purchases, and its estimated revenue per user was $7 in 2014, according to Nomura. [1]

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While the free WhatsApp service should continue to see an increase in the number of users, WhatsApp’s ultimate monetization strategy, once established, should allow Facebook to generate revenue from this large user base. Just what form the the desired “commercial participation” will take is unknown at present.  Accordingly, it is not yet fully reflected in our valuation of the company.

Have more questions about Facebook? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Facebook

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Notes:
  1. WeChat is nothing like WhatsApp- and that makes it even more valuable, Quartz, February 2014 []