Stifel Considers Facebook's Messaging Opportunity

Commenting on Facebook Inc (NASDAQ: FB)'s messaging opportunity, Stifel’s Scott Devitt said the company had a “multi-year monetization catalyst ahead.” He recommended investors to own Facebook as a long-term holding.

“While we are not adjusting our model at this time due to limited visibility into the trajectory of Facebook’s messaging monetization, we think WhatsApp and Facebook Messenger could provide material upside to our current topline estimates,” Devitt wrote

Rapid Growth

Facebook currently has the largest global messaging footprint with WhatsApp and Facebook Messenger. “We view WhatsApp and Facebook Messenger as significant future revenue drivers due to the size and engagement levels of both platforms,” Devitt mentioned.

WhatsApp and Facebook Messenger could contribute a combined ~6–21 percent upside to the total revenue estimate of $63.7 billion for 2020.

Monetization Opportunities

Media, retail, travel and financial and professional services could be the key verticals to use messaging platforms. Ad spend in these verticals is projected to exceed $400 billion in 2020, with 36 percent of the total spend being online, the analyst stated.

Facebook gave a deeper push to gaming with its recent launch of Instant Games in Facebook Messenger. Mobile and social gaming is already a huge market, and it is expected to reach a combined $33 billion globally in 2018, Devitt said.

The analyst pointed out that the base case for monetization of Facebook’s messaging apps assumed an ARPU (average revenue per user) of less than $3 in 2020, which appeared achievable.