Instant Messaging Could Mean Instant Growth for Facebook Inc

Though panned by some industry insiders for its $19 billion WhatsApp acquisition, the social media king may have the last laugh.

Jun 11, 2014 at 2:05PM

For some investors, Facebook's (NASDAQ:FB) decision to drop $19 billion on up-start mobile messaging service WhatsApp in February may still be a head-scratcher: it certainly was at the time. There were a few, legitimate reasons some investors felt a bit uneasy following the deal. Fans of Facebook's ugly stepchild, Twitter (NYSE:TWTR), were no doubt ecstatic, wondering "what are those guys thinking?"

But with Chief Executive Officer Mark Zuckerberg and team flying high in terms of growing both users and revenue, shareholders seemed content to give Facebook the benefit of the doubt, actually boosting its share price in the days following the announcement. Looking forward, there are significant opportunities for Facebook to justify the whopping price tag for WhatsApp.

A glass half empty
If you were to look back at the reaction immediately following Facebook's announcement that it had acquired WhatsApp, you'd be hard-pressed to find many industry pundits extolling the benefits of the deal. The consensus, and it was just about that, centered on a few, key concerns.

The first, and most obvious, concern was how does a company that generates a paltry $20 million in annual revenues warrant that kind of price tag? One of WhatsApp's claims to fame, which played a big role in why it grew to 450 million users prior to Facebook entering the picture, was it charged customers $1 a year for the service. Another was its promise, direct from the founder, there would be no ads to contend with.

In large because of the above, most believed Facebook paid a gargantuan premium, particularly when that concern was coupled with questions about how to monetize WhatsApp without charging a higher annual fee or including ads. The former remains a legitimate alternative, the latter? Time will tell.

Finally, in the U.S. there was the, "Who are these WhatsApp guys?" question to consider. Even now, according to a recent study from comScore, only 31% of mobile phone users have any messaging service. And most mobile messagers use Facebook's own Messenger service.

A glass half full
It wasn't too long after the WhatsApp deal was announced that a few far-sighted analysts began to reevaluate the deal. A couple of pundits at Sterne Agee suggested that WhatsApp will generate nearly $1.2 billion in three years, with margins as high as 80%. And they may not be far off.

Already, WhatsApp has grown to over 500 million monthly average users, or MAUs, from the approximately 450 million in late February. By comparison, Twitter grew to 255 million users in its recently completed Q1, meaning Twitter's number of MAUs grew nearly the identical 50 million in the past year as WhatsApp has in less than four months. Zuckerberg seems well on his way to reaching his goal of growing WhatApp's user base to one billion. And who knows where WhatsApp goes from there?

The relatively small penetration of U.S. mobile phone owners using messaging services, if you opt to take a half-full approach, isn't a weakness, it's a fantastic opportunity. One study comparing mobile messaging services in developed countries listed the U.S. tenth. Well behind folks in Spain, that have a whopping 83% of its mobile phone owners using instant messaging. Of course, geography plays a part in that, too. With no carrier fees attached to messages sent across country borders, European and Asian users have an added impetus to use apps like WhatsApp. But domestically, there's still a lot of upside.

Final Foolish thoughts
Assuming the rumors are true, WhatsApp should be introducing a calling feature in the not-too-distant future. Will Facebook attempt to monetize a calling service? Perhaps, but just as with ads on WhatsApp, all parties say "no." Then again, Instagram is ready to be monetized, once a few of its video ad tweaks are completed, something Facebook held off on for over two years. And it's not hard to imagine the same happening with WhatsApp at some point in the future.

For now, WhatsApp's promise of no ads is a huge differentiator from Twitter who, in an effort to justify its market capitalization of over $21 billion, is going advertising gang-busters. And that could work in WhatsApp's favor as more users consider messaging. But even without ads, we know Facebook loves and can use data at a level unmatched in the industry.

WhatsApp's comprehensive data on over 500 million users is growing daily, and it includes phone numbers. Facebook has other, profitable ways to use that data, including its own site, Instagram, and Messenger. Half-full, half-empty? For growth investors, Facebook's WhatsApp acquisition warrants a healthy dose of optimism.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool 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