The Next Major Pillar for Meta Platforms Isn't the Metaverse

The Next Major Pillar for Meta Platforms Isn’t the Metaverse

Mark Zuckerberg is refocusing efforts on another business with a massive user base.

Meta Platforms ( META -0.74%) is pouring billions of dollars into developing the metaverse , but CEO Mark Zuckerberg is still building up another major pillar of his business.

Before Meta’s virtual reality headsets and metaverse software turn into a substantial source of revenue growth, Zuckerberg thinks there’s still a lot of room to grow WhatsApp. The company bought the text app in 2014, back when Meta was still called Facebook, for the equivalent of $21.8 billion in stock. While it’s continued to grow its user base, it hasn’t managed to generate that much revenue.

That may be changing as Zuckerberg and his company turn to the massive user base as a source of revenue amid a slowdown in its core advertising business. A progress report

Management provided investors with some interesting details about WhatsApp during the third-quarter earnings call last month.

North America is now WhatsApp’s fastest-growing region, management shared. It’s not clear, however, whether that’s due to a saturation in other parts of the world or an acceleration in North America. Nonetheless, the disclosure is a signal there’s still room for growth in this extremely valuable market, and management intends to go after it.

Another new disclosure was the impact of WhatsApp on click-to-message ads businesses run on Facebook and Instagram. Overall, the annual run rate on those ads reached $9 billion in the third quarter, and click-to-WhatsApp accounted for $1.5 billion of that. What’s more, WhatsApp sales grew 80% year over year.

There’s strong potential for growth just from the click-to-message ads. North America is a much more valuable market than other regions like Europe or Latin America. Facebook’s average revenue per user in the U.S. and Canada last quarter was $49.13 compared to $14.23 in Europe and just $3.21 in the Rest of World region. So, just growing the North American user base should help revenue growth.

Moreover, the ability to directly connect businesses and customers has increased in value following the impact of Apple ‘s iOS privacy update, which negatively impacted ad revenue for most social media companies . That should lead to a shift in businesses focusing on ad products like click-to-message and developing best practices for converting those ads into sales. In turn, it should lead to higher average ad prices for the format and the increased importance of WhatsApp in Meta’s advertising ecosystem. What’s next for WhatsApp

Management thinks click-to-message ads are just the start for monetizing its messaging app user base.

“We’re really bullish on where paid messaging can go over the next several years,” CFO Dave Wehner said on a follow-up call to the earnings call last month. “Commerce is going to be a component of that; it’s not going to be the exclusive component of that.”

To that end, Meta expanded a pilot program in Brazil called Business Directory. The feature allows users to browse businesses based on categories like food and drink or travel, or just by searching their name. “The ultimate goal here is to make it so you can find, message, and buy from a business all in the same WhatsApp chat,” Zuckerberg said at a WhatsApp-focused business summit in Brazil. The pilot will expand to more countries in the near future.

If the feature proves popular and useful for both consumers and businesses, it may become a major advertising opportunity for Meta. If someone’s searching for a salon in their area, for example, it’s easy to sell ad space at the top of search results.

In the meantime, Business Directory may serve to improve engagement on the platform and increase the amount of interaction between individuals and businesses. As that type of engagement grows, it may benefit the click-to-message ads on Facebook and Instagram, as consumers will be used to interacting and purchasing from businesses on WhatsApp. The next big revenue source

Meta generates around $120 billion in revenue per year. WhatsApp has the potential to turn from just a rounding error to a growth driver.

And the growth outlook for Meta is very weak right now. Analysts expect revenue to grow just 5% next year, reaching $122 billion. If WhatsApp’s click-to-messaging ad revenue continues to grow at the same rate as last quarter, it’ll account for 20% of the estimated revenue growth for the whole business.

It’s not inconceivable that WhatsApp becomes a $10 billion-plus business for Meta platforms, and it can get there a lot faster and with a lot less capital invested than Reality Labs. Should you invest $1,000 in […]

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