This Could Be Massive for Facebook Stock
Investing in startups could give you big returns, but you could also lose your entire investment. But what if I tell you there is one stock that has the stability of an established company and the potential of a startup? Well, there is and it’s Facebook Inc (NASDAQ:FB) stock.
As we have seen this earnings season, the Internet industry can be quite volatile. However, Facebook stock remains a hot commodity. The reason is simple: despite being the largest social media platform in the world, its growth does not show signs of slowing down.
The company is already a behemoth, with monthly active users (MAUs) equivalent to one-fifth of the entire population on Earth. Yet it still found a way to grow that number by 15% year-over-year to 1.65 billion in the first quarter. What this means is that every other Internet user in the world is on Facebook. (Source: “Facebook Reports First Quarter 2016 Results and Announces Proposal for New Class of Stock,” Facebook Inc, April 27, 2016.)
But one segment alone is not enough to propel Facebook stock, especially when it trades at 92 times its earnings. No matter how wonderful its core business is, the company needs other sources of growth.
The most talked-about new gig at Facebook is “Oculus Rift,” a virtual reality (VR) headset. While the VR industry could be generating billions of dollars in revenue in the next few years, that’s not what I’m looking at today. Instead, I’m looking at one segment of the company that has the potential of becoming even bigger than its social media app.
This might not seem that possible at first. But what if the segment already has one billion users and user engagement could be just as high as on Facebook’s main social media app?
Those who follow Facebook closely would have already figured out what I’m referring to by now—“WhatsApp.”
Sure, it’s just a messaging app. But this app has one billion MAUs. It’s by far the most popular messaging app in the world. One in seven people on Earth use it to stay in touch with their friends and family. (Source: “One Billion,” WhatsApp Blog, February 1, 2016.)
Obviously, Facebook did not get ahold of the popular messaging app for free. In fact, it paid a whopping $19.0 billion to buy the company two years ago. (Source: “Facebook Closes $19 Billion WhatsApp Deal,” Forbes, October 6, 2016.)
The app has continued to grow since Facebook took ownership, but what FB stock investors really care about is whether the app is making money for the company.
Well, at first glance, that does not seem to be the case. WhatsApp was charging users a $0.99 annual fee, but the company stopped doing that this past January. Right now, the app is free to download and use. (Source: “Making WhatsApp Free and More Useful,” WhatsApp Blog, January 18, 2016.)
You’d think that by removing the annual fee, WhatsApp would start running ads. But the company isn’t doing that either. So how can Facebook monetize an app that it paid billions of dollars for?
The answer lies in a statement put out by the company. WhatsApp says that “Starting this year, we will test tools that allow you to use WhatsApp to communicate with businesses and organizations that you want to hear from. That could mean communicating with your bank about whether a recent transaction was fraudulent, or with an airline about a delayed flight.” (Source: Ibid.)
It might not sound that clear at first. But what WhatsApp plans to do is become the ultimate platform for businesses to communicate with consumers. And that could lead to something really big for Facebook stock.
As consumers communicate with businesses through WhatsApp, they might also want to use the app to do other things, such as make reservations and book appointments. Moreover, the app could roll out transaction services. In case you’re not aware, Facebook already supports payments on its “Messenger” app, so it would be simple enough to add this feature to WhatsApp as well.
I believe that WhatsApp has the potential to become a full-fledged business-to-consumer (B2C) platform. It could take on the roles of Groupon Inc (NASDAQ:GRPN), Yelp Inc (NYSE:YELP), and even the mighty Amazon.com, Inc. (NASDAQ:AMZN).
Why would it be able to challenge those industry leaders? Well, its one-billion-plus userbase is certainty a good starting point.
The Bottom Line on Facebook Stock
At the end of the day, don’t forget that in the East, there is already a successful example of such an app—“WeChat.” It has nearly 700 million users and has a full suite of business apps within the app. Moreover, WeChat also has its own mobile payments service. However, its presence in the West is minimal compared to Facebook’s WhatsApp.
It would take more than a day for WhatsApp to carry out its plan, but when it finally achieves what it has set out to do, Facebook stock won’t be this cheap.