When Facebook purchased WhatsApp last year for $US19 billion, many were shocked by the astronomical price paid for a little-known company with only 55 employees.
But today Wall Street sees the messaging app playing a huge role in Facebook’s future.
In a note to clients on Tuesday, Deutsche Bank estimated that WhatsApp, along with Facebook’s Messenger app, will have more than 2 billion active users and generate between $US9 and $US10 billion in revenues in 2020.
“We see Facebook’s messaging apps as the next major wave of innovation and financial windfall for the company,” the report said, adding that messaging will be a “massive” opportunity for the company.
Deutsche Bank is predicting an enormous monetisation of Messenger and WhatsApp, which currently provide $US0 and $US49 million in revenues, respectively. By 2020, they expect those numbers to jump to $US4.224 billion and $US4.827 billion, representing about 17% of Facebook’s total ad revenues.
Messaging apps are becoming immensely popular around the world, with mobile-first apps like WhatsApp being “always on” replacements for SMS.
“The value of sending fast, reliable and free messaging vs. the previous onerous SMS fees charged by carriers (especially for international SMS), is clear as day and a big reason why these services took off initially on a global scale,” the report said.
Facebook’s two apps have grown globally too, especially in emerging markets. WhatsApp has 800 million users, with 80% from emerging markets while Messenger has 700 million users, with 75% from these markets.
WhatsApp has penetrated an impressive 88% of the mobile market in Brazil and 81% of the mobile market in Argentina.
Around the world, messaging apps are monetizing in different ways.
China’s Tencent, Japan’s Line and South Korea’s KaKao are reaping in cash from in-app purchases.
Facebook, however, faces a different situation because of the profit-sharing with the Apple and Google app stores.
So, Facebook has focused on building up it’s advertising, which could one day compete with Google. The analysts pointed out that Facebook’s ad business has thrived in terms of advertiser density, targeting, creativity, and the availability of metrics for advertisers.
“Facebook also has a long history of strong ad tech capabilities primarily around its organic native mobile ad experience,” the report said. “More recently, the company has added a lot of capabilities to bring these native ad formats and the great targeting outside of the core app and into third party publishers.”
Deutsche Bank expects Facebook to leverage their advertising skills, especially with app install ads and video ads, and incorporate them into the messaging apps.
Another revenue driver within the messaging apps could be mobile payments, a feature that Facebook announced in March of this year.