How Much Revenue Can WhatsApp Generate?
Facebook ( NASDAQ: FB) has yet to substantially monetize its popular messaging app WhatsApp. Companies such as Tencent (WeChat app) and Line, who operate comparable messaging apps, have successfully monetized their user bases. These apps are selling in-app content, ads, games and stickers to generate revenue. We expect that WhatsApp will eventually follow a (relatively) similar strategy to monetize its user base. In this note, we estimate the earnings potential of WhatsApp.
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WhatsApp Could Add Billions To Facebook’s Top Line
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While WhatsApp presently doesn’t earn any meaningful revenue, WeChat and Line are being monetized through an array of features such as advertisement, games, online payment services and in-app purchases. We believe that WhatsApp could add billions of dollars to Facebook’s top line if it were to follow a similar strategy. Its monetization potential can be benchmarked to WeChat and Line’s performance metrics:
- Over 600 million, or 67% of WeChat users, were using WePay, the payment service in WeChat (known as Weixin in China). Tencent also reported that WePay processed over $50 billion in bank transfers every month in 2016.
- Furthermore, WeChat generated RMB 5.3 billion ($800 million) in ad revenues. Demystify Asia estimates that WeChat’s average revenue per user (ARPU) was around $7.
- Meanwhile, Line generated over 44% of its revenues from ads in the last quarter, and close to ¥121 billion in the first nine months of 2017.
Based on the above numbers, we have estimated the ARPU figures for both WeChat and Line, as they can be used as a benchmark for WhatsApp’s ARPU potential. Note that WhatsApp’s ARPU could potentially even outpace those of WeChat and Line based on solid user growth trends and network effects with other Facebook businesses.
We estimate that WhatsApp could generate anywhere from $5 billion to over $15 billion in the coming years if Facebook can implement effective monetization strategies. For example, recently the company was testing a new product called “red envelope”, a peer-to-peer (P2P) payment service. Reports also suggest that the company is introducing a peer-to-peer payments system on its WhatsApp platform in India, indicating that the company is exploring the payments business seriously (Read Is Whatsapp Launching A Payments Service In India?). The company could also look to monetize WhatsApp by integrating it with Facebook Marketplace.
We currently have a $165 price estimate for Facebook’s stock, which is slightly below the current market price.
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