A major reason behind Facebook’s (FB, Financial) sky-high price-sales (P/S) ratio is the unknown monetization plan around WhatsApp, and the potential money it can bring in. WhatsApp is one of the world’s leading messaging apps with well over 1 billion users worldwide.
Messaging applications typically have high potential to earn ad revenues. The Chinese messaging app WeChat is a perfect example of a money engine.
“WeChat pulled its weight on the business side by helping Tencent’s advertising business, its fastest-growing monetization stream, continue positive growth.
“Total online ad revenue came in at 7.5 billion renminbi ($1.086 billion), up 51% on second-quarter 2015, with 'performance marketing' sales jumping by 83% to hit 4.4 billion renminbi. Tencent said advertising in the timeline of WeChat, its mobile news app and revenue from official accounts for brands inside WeChat were the key drivers.” – Techcrunch
Facebook has been using a hands-off approach with WhatsApp, allowing the application to stand on its own legs as a standalone application. When Facebook thought it needed a tightly integrated messaging app for its own platform, it created a new messaging app for Facebook instead of trying to integrate WhatsApp, which would have surely been a huge turnoff to WhatsApp’s user base.
That was a clear indication of how much importance Facebook gave to the integrity of the WhatsApp platform and what its billion plus users have come to be familiar with.
But the time has come for WhatsApp to start making money. According to reports, WhatsApp is well on its way to launching a digital payments service in India.
“WhatsApp may be about to introduce peer-to-peer payments in India, its largest market with over 200 million users.” – Techcrunch
Truecaller, an app that helps users keep pesky callers at bay by identifying unknown numbers, could have been the straw that broke the camel’s back as far as Facebook’s lack of moves with WhatsApp is concerned.
Instead of sitting in its niche eking out revenues from display advertising, Truecaller decided to offer a digital payments option to its users.
That move alone could have prompted Facebook to take the next step with WhatsApp. India is a massive market with WhatsApp and Truecaller both dominating their respective niches. And what was, until now, two independent apps living harmoniously side by side is rapidly shaping up to be an epic rivalry in digital payments in one of the fastestgrowing emerging economies in the world.
With well over 100 million users in India, both companies are poised to capture massive shares of the digital payments market in that part of the world.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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