Why Facebook's New App May Be More Valuable Than We Realize

Among the reasons Facebook may have paid so much for WhatsApp, this reason may be the best.

Feb 27, 2014 at 7:30PM

"There's been so little precedent for business at this scale that we have a hard time simply comprehending all of this," said The Wall Street Journal author Dennis Berman about Facebook's (NASDAQ:FB) announcement of a deal valued at about $19 billion to acquire WhatsApp, a multi-platform messaging service. "I'm still learning, too." Berman's reaction to the deal eloquently encompasses the general response from the media and the Street; $19 billion for a 55-employee company is simply a challenge to comprehend, and it's going to take a while -- if ever -- for the general public to make sense of it.

Fb Whatsapp

Image source: Facebook.

In my efforts to get a better grasp on exactly why Facebook spent so much on WhatsApp, I've uncovered one key reason Facebook may have interpreted the messaging app as such an incredibly valuable company: Monetization of the app is in still in its infancy.

Monetization has only just begun
Just days after Facebook announced the deal to acquire WhatsApp, the small company announced a new and valuable feature in its efforts to bring "rich, affordable, reliable messaging to every phone in the world." At the Mobile World Congress conference in Barcelona this week, co-founder and CEO Jan Koum said it would begin offering voice calls as early as April. The new service could be an early move to add another revenue stream to the service.


Image source: WhatsApp.

Given the fact that WhatsApp currently only has just one small revenue stream of one dollar per user after a user's first year, any new revenue stream is incredibly meaningful. But do such nominal revenue streams come even close to meriting a $19 billion valuation? Considering the company already has almost a half a billion monthly active users and wants to reach 2 billion in the coming years, nominal revenue streams do add up.

So it is in this example of simple ways to add another revenue stream that I found my first reason to believe that there could be a day we look back and realize that a $19 billion valuation for WhatsApp made sense. Perhaps WhatsApp is so early in its monetization stages that we are clueless as to just how valuable a fast-growing massive network of this scale really is. Facebook CEO Mark Zuckerberg seems to agree that WhatsApp's monetization is still in its early stages, explaining at the Barcelona conference that other messaging apps are already getting $2-$3 per user.

Meaningful monetization won't happen soon
Investors shouldn't hope to see Facebook get its money's worth out of this acquisition anytime soon. Not only is the app opposed to having ads on the platform, but Zuckerberg has said that WhatsApp will continue to operate independently. But considering what this disruptive app has done with 55 employees already, it's a wonder what WhatsApp could accomplish with access to Facebook's enormous resources.

The point isn't that the price Facebook paid for WhatsApp makes sense, but that there may be far more value to this multi-platform messaging service than we would initially imagined.

Miss out on Facebook's 160% twelve-month gain?
There's more out there -- and a great place to start looking is with these six stock picks from The Motley Fool's David Gardner. His impressive track record includes picks that returned 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers