About half of Facebook's (NASDAQ:FB) revenue comes from the U.S. and Canada, even though the two countries account for just 13% of the social network's monthly active users. Not only is the U.S./Canada Facebook's largest market by revenue, its average revenue per user is growing faster than any other region.
But that trend may change as Facebook looks to grow its advertising on Instagram and start monetizing Messenger and WhatsApp. Southeast Asia represents a huge opportunity for Facebook to grow, as more than 30% of online commerce in that region takes place through social media, according to estimates from consulting firm Bain & Co. That compares to just 7% in the United States.
As Facebook develops more ways to facilitate online commerce through all of its apps, it stands to rapidly increase its average revenue per user in a region with a user base that's already larger than the U.S. and growing much faster.
Making money with Messenger
Most social commerce in Southeast Asia takes place through a messaging app like WhatsApp or Line (NYSE:LN). A user will first find an item on Facebook or Instagram, and message the business for more information on the product and to place an order.
The amount of organic interaction between users and businesses on Facebook's messaging apps is significantly higher than in other regions. Facebook says the number of messages users send to businesses on Messenger in Thailand, for example, is twice as high as the global average.
That's important to note because Facebook CEO Mark Zuckerberg says that's a key step in monetizing its apps. Once users and businesses are interacting on their own, Facebook can monetize an app by releasing tools to reach more people.
Line is a step ahead of Facebook. It offers a tool called Line@ in Southeast Asia that's used by more than 2 million businesses. Line@ businesses can broadcast coupons and promotions to users and customize their Line handles for a fee. Line also facilitates commerce like grocery orders and taxi rides in certain countries. Line won't disclose how much it makes directly from commerce activities, but it's generated nearly 325 billion yen ($2.8 billion) over the last four quarters.
Facebook has 629 million monthly active users in its Asia-Pacific region. It's a good bet most of those users are on either Messenger or WhatsApp as well. With their social commerce behavior, it should be one of the first places Facebook is able to generate significant revenue from its messaging apps.
Fueling regular ad growth
Consumers' penchant for shopping on Facebook and Instagram in Southeast Asia should also drive Facebook's existing advertising revenue on the two platforms. As more consumers and businesses come online, advertisers will have to spend more to stand out from the crowd.
Facebook CFO Dave Wehner recently warned that it has nearly saturated the ad load on its flagship platform -- the number of ads it can squeeze into users' News Feeds. Raising rates through an increase in demand should enable Facebook to continue growing its ad revenue on Facebook and Instagram.
Additionally, Facebook introduced an ad that directs users to message businesses directly through Messenger. That ad unit may grow more popular and useful after Facebook introduces more tools to help businesses grow their sales through Messenger.
Facebook's average revenue per user in Asia-Pacific was just 12% of that in the U.S. and Canada last quarter. And while the standard of living remains below that in the U.S., investors should watch for Facebook to close that gap over the next few years. Couple that with the continued user growth in the region, and Asia-Pacific will be a huge revenue driver for the social network.