It has been a busy week for WhatsApp after being acquired for $19 billion by Facebook (NASDAQ:FB) last Wednesday, but the most important news for the mobile messaging company might have just come out of the Mobile World Congress in Barcelona this morning. WhatsApp founder Jan Koum announced that the mobile application company will introduce voice communication capabilities into the product offering starting in Q2 2014. Shares of FB rose 3.6% to a new all-time high of $71.09 on the news.
FB CEO Mark Zuckerberg discussed his goals for the recent acquisition during a press conference following the deal last week. Toward the top of the list was continued growth in user adoption and engagement - WhatsApp had 450 users last week and is already up to 465 million, but Zuckerberg and Koum have a shared target of eclipsing 1 billion. Monetization of the app - and justification of the big-ticket purchase - were called into question last week after news broke of the deal. Users pay $1/year after one year of using the service and critics argued the revenue generation was not enough to sustain such a high valuation. The news that WhatsApp will enter the voice communication marketplace is not only disruptive to the industry, but also offers a completely new vertical for revenue generation going forward.
In a previous article about the deal and the positive implications for FB, I cited a study from Ovum, a London-based consulting firm, which noted the mobile SMS industry generated $120 billion in revenue in 2013, down from $145 in 2012 as a direct result of broadband-powered mobile messaging apps. These apps, however, have not yet monetized the difference in revenue generation, and that divergence speaks to potential revenue generation going forward. Similarly, with WhatsApp's announcement today that they'll focus efforts on user adoption of voice call technology, the voice-over-IP concept was just taken to a new level. In a report from The Register, a UK tech magazine, it was cited by Ovum that: "In 2016, non-voice revenues will no longer be a supplement to voice revenues. Instead, they will begin to replace them." The use of data is growing substantially while voice plans have faltered. This news out of WhatsApp coupled with any potential integration into the actual FB platform for voice connectivity is significant. It points to a future with no need for voice or SMS plans. In the same study done by Ovum it is noted that the current voice market generates $645 billion in annual revenue. 63% of the world's people are mobile phone users - that's 4.4 billion people, and they contribute to voice and SMS plans currently yielding $765 billion in annual revenue, or $174/mobile user per year. If WhatsApp - and the host of other mobile communication applications - is successful in transitioning users to sole reliance on data communication (ultimately, this is the goal), and predictions are correct that global smartphone users will grow to 1.75 billion by 2016, then their target addressable market becomes $305 billion in annual revenue.
The news today from WhatsApp has been relatively quiet thus far, but it might be the most significant product development the company has ever announced.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.