Meta Platforms – Business talks

WhatsApp Business is the only real opportunity.

• WhatsApp cost $22bn to acquire but has so far delivered very little although the indirect value that it has created in terms of keeping Meta as one of the largest digital ecosystems globally is indisputable.
• Unfortunately, unless one is a generative AI company, $0 revenues mean no contribution to the share price which in the “year of efficiency” means that WhatsApp needs to be looked at.
• RFM Research has long defined three methods of monetisation but only one of these is likely to make any sense for monetising WhatsApp users.
• These are:
  • Monetisation via hardware, where the ecosystem is made exclusive to hardware manufactured by the ecosystem owner.
  • Users pay a premium price for the hardware to access the ecosystem and the ecosystem is monetised via high hardware margins.
  • This is the Apple model which is to a degree also how Nvidia can earn 70% gross margins on its GPUs.
  • Monetisation via advertising where the ecosystem is given away for “free” and then a return is made by selling targeting advertising based on the user’s activity within the ecosystem.
  • This is the Google, Meta Platforms et al model and works extremely well when addressing the mass market.
  • Monetisation via subscription where the user opts to pay a monthly fee for a service in order to remove the advertising from the service.
  • This is the primary monetisation method of Netflix and Spotify and is also how Apple monetises the services and content that it creates or buys.
• Meta Platforms has no hardware platform other than Oculus over which it has control and so this route is a non-starter.
• This leaves either advertising or subscription.
• WhatsApp enjoys its greatest popularity outside of the USA and in emerging markets its use is almost ubiquitous.
• While emerging market users are numerous, they are also far less affluent, meaning that a monthly subscription charge could cause large swathes of the user base to decamp elsewhere.
• There are plenty of perfectly good competitors but none of them have the network effect that WhatsApp does and so a user exodus is something that must be avoided at all costs.
• This leaves advertising which also comes with the risk of degrading the user experience and needs to be treated with caution.
• I suspect that Meta Platforms could probably get away with a low level of advertising, but it would need to be targeted based on the user’s Facebook or Instagram account as Meta Platforms can’t see WhatsApp traffic.
• This is unlikely to deliver much in the way of revenues and so I suspect that by far the best option is going to be to monetise WhatsApp for Business much more aggressively.
• WhatsApp is increasingly a great way to reach customers and to act as a channel for customer service, but there are still free tiers in the service.
• There are around 50m WhatsApp business accounts and even a small fee every month would go a long way towards generating significant revenue.
• Furthermore, many of these users are generating extra revenue and/or enjoying lower support costs as a result of using WhatsApp for business meaning that they are most likely to be willing to pay something and not desert the platform.
• This is where I see the low-hanging fruit and where I suspect that Meta Platforms will go.
• Given the scale of Facebook and Instagram, this is unlikely to move the revenue significantly, but it would come at no real extra cost and so this should all fall to the bottom line.
• Hence, it should help profitability which is the name of the game for 2023.
• I missed the opportunity to buy Meta at $90 because I was hanging on for $70 and so I would not be inclined to chase it here as the valuation discrepancy has pretty much resolved itself.