How Facebook Can Monetize WhatsApp
Facebook’s (Nasdaq:FB) messaging app, WhatsApp, has one of the largest user bases in the world. However, WhatsApp’s current monetization is relatively paltry compared to the magnitude of its user base (not to mention the rest of Facebook’s platforms). Considering that competing apps such as WeChat and Line have been able to monetize their user bases through an array of features such as advertisements, games, online payment functions and in-app purchases, we believe that Facebook can generate a meaningful revenue stream from the platform over the next couple of years. In this note, we explore the strategy to monetize WhatsApp in the coming years.
WhatsApp Is Set To grow
WhatsApp has become the mainstay of messaging on the smartphone. Its user base has risen at an impressive rate in the past few years, as it crossed 1 billion in January 2016 and continued to grow to over 1.3 billion in 2017. As global smartphone penetration improves, we expect further growth in total users on Whatsapp. Engagement levels on the messaging platform are also high, with over 55 billion messages being exchanged each day on the app. This translates into more than 42 messages per person per day. Furthermore, these users share 4.5 billion photos and one billion videos per day. We believe these impressive engagement metrics bode well for monetization on the messaging platform.
How Can WhatsApp Boost Top Line?
While Facebook doesn’t seem to be in a hurry to monetize WhatsApp, as it is still prioritizing user growth on the platform, we believe the company will start deriving meaningful revenues from the messaging platform by replicating the model implemented by WeChat, which has close to 890 million users. The company can look to monetize its user base in a variety of ways:
- Implementing a payments service on WhatsApp: Considering Facebook is integrating peer-to-peer payments within its Messenger app, it could potentially take a similar path for WhatsApp as well. We believe that the company can extend this functionality to other markets and improve monetization rates.
- In-app purchases could be a driver: In-app purchases such as games and stickers represent a key source of monetization on Line and WeChat. We believe that such in-app purchases could also trigger monetization on WhatsApp.
- In addition to these, we believe the platform can also be monetized through in-app advertising, considering that WhatsApp Status – which is similar to Snapchat – also has 300 million daily active users. The company can integrate ads into WhatsApp Status.
In a subsequent note, we will further explore the potential revenues that WhatsApp can generate for Facebook. We currently have a $165 price estimate for Facebook’s stock, which is slightly below the current market price.
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