Facebook Inc (NASDAQ:FB) already had a strong presence on mobile with Facebook Messenger. But the company reached a wider audience with the $19 billion acquisition of WhatsApp. Mobile messaging apps have increasingly become an important component of user communications. As Facebook adds more features to WhatsApp and improves quality, that will directly affect traditional telecom services such as voice and SMS.
Facebook’s WhatsApp acquisition costly, but a strategic one
Evercore analyst Ken Sena says that WhatsApp is well positioned to challenge the telecom industry based on its user scale, mobile OS interoperability, and daily user frequency. As WiFi and spectrum availability expands, the newer connected devices would be available with more messaging feature sets. WhatsApp’s strong reach makes it quite attractive to developers. Developer interest would help Facebook Inc (NASDAQ:FB) expand the experience well beyond messaging. The messaging app has a potential as an app platform between the mobile OS and other services such as commerce and payments.
We have already seen several such examples. Chinese messaging service WeChat launched “electronic red envelopes” during the Lunar New Year. Chinese people have a tradition of giving a red envelope with money to family and friends with hopes of good luck. And WeChat’s offering was the digital equivalent of this practice, which was used by more than 585K people in less than five minutes. Japanese messaging app Line is monetizing by selling virtual goods, images, games and physical goods payments.
Facebook can make wireless carriers redundant, but not right away
Last year, Facebook Inc (NASDAQ:FB) launched Internet.org initiative to make Internet accessible to a wider world by increasing affordability. The social networking giant’s recent efforts suggest that soon there will be communication methods that can bypass wireless carriers completely. And mobile messaging will play a critical role in this ecosystem.
Facebook Inc (NASDAQ:FB) recently acquired Israeli data compression company Onavo, and solar-powered drone maker Titan Aerospace. The drones can remain in space for five years. Facebook is likely to use these drones to provide Internet connectivity in third-world countries. Even if the drones are able to provide weak Internet connectivity, users will easily be able to communicates. That’s because Onavo’s data compression technology would allow users to communicate without requiring much data. Mark Zuckerberg said at the Mobile World Congress that last year people spend 14MB data per day on Facebook. Thanks to Onavo, that figure has fallen to a meager 2MB per day now, and is likely to reach 1MB by next year.
Evercore has a $64 price target on Facebook Inc (NASDAQ:FB) with Equal Weight rating. Facebook shares rose 1.16% to $70.91 at 1:42 PM EDT.