The purchase of WhatsApp by Facebook (NASDAQ:FB) is a game changer for the social media giant. Until now, Facebook just wasn't able to get mobile P2P right; all of Facebook's previous mobile apps were considered failures (at least by me), as I considered Facebook extremely not user-friendly to access by mobile phone. Thus, the purchase of WhatsApp should be perceived as a strategy to gain both a mobile interface that is not only more user-friendly than anything Facebook created, but that also has certain monetizable features that come along with P2P application use. However, despite this monumental entry into P2P and eventual mobile payments, Facebook's quest for world domination is far from over.
Out in the Far East market of China, there has been increased market chatter about Facebook buying WhatsApp, and what future implications hold for China's champion of chat, 'WeChat'. Many Chinese consumers speculate that Facebook will eventually look at WeChat and its parent, Tencent (OTCPK:TCEHY), as a merger or acquisition target as well. So let's examine some of the similarities and primary differences between the two, as I can ultimately ensure competition is locked down in the eastern market.
First of all, for the laymen, WeChat is China's extremely user-friendly and seamless way to connect two or more people together in P2P or group chat. It enables peers to send pics and videos extremely fast, talk-live, and even video chat. Both companies have a similarly large user base (WeChat is listed to have between 300 and 400 million active users, a bit less than WhatsApp's 450 million, but arrived on the scene later than WhatsApp); both are aggressively expanding outward into other developed and emerging markets, such as India, Brazil, Europe and Africa; and both are seeking ongoing ways to monetize respective user bases.
The distinguishing feature about WeChat is its ability to link users' financial information and bank account directly to mobile phone use, and ensure secure mobile payments. Mobile payments are not as widely accepted in the US as they are in China; in China, mobile payment methods are not only thriving, they are becoming the preferential way for consumers to make purchases - and it has developed in China almost overnight.
In 2013, China rose from relative online purchase obscurity, to leapfrog the US, in terms of total value of B2C and C2C goods purchased online. In addition to this development, it was noted that 55 percent of all internet users in China, who have made an e-commerce transaction, have also made a mobile transaction of some kind, while only 19 percent of consumers who have made an e-commerce transaction in the USA, have also made a mobile transaction. This rather significant discrepancy is due to the relatively higher acceptance of mobile payments by Chinese consumers.
And because of this greater acceptance by Chinese customers to make mobile payments, WeChat now looks like the more valuable future option. Several analysts are bullish on WeChat's ability to monetize their P2P strategy. WeChat has a feature called 'look around'; what makes this feature special is it is able to identify several retail outlets within the user's vicinity. International outlets such as Starbucks (NASDAQ:SBUX), KFC (NYSE:YUM) and McDonald's (NYSE:MCD) are teaming up with WeChat to monetize usage. According to analysts:
WeChat is expected to bring in 6.8 billion Yuan ($1.1 billion) in 2014 and about 40 percent more than that in 2015, while Nomura estimates WeChat's average revenue per user is $7 dollars per user, compared to only $1 dollar per user on WhatsApp. This extra cash flow is driving value - analysts at Barclays estimate that WeChat is valued at about $30 billion as a standalone business, or about $95 dollars per user, easily exceeding the $19 billion and $45 dollars per user that Facebook paid for WhatsApp.
Some other examples of WeChat's initial mobile monetization strategy include: purchasing mobile phone 'top-up minutes' directly from China Unicom or China Mobile, mobile taxi booking and reservation services, movie theatre and advanced ticket purchases, and even wealth management, banking, and online bill pay capabilities. WeChat is taking its application past the point of needing other 'service' applications, positioning other purchase apps within its own application. This is creating an environment where a singular P2P app is now changing the landscape for other 'purchase' applications.
Although Facebook's purchase of WhatsApp certainly guarantees that Facebook will now have a profound user base that finally accepts a 'Facebook' mobile application, there is no guarantee that the user base will accept WhatsApp's monetizable features, like the Chinese market does. WeChat, however, has a large and growing user base (both within and outside of China), a greater user acceptance for online payments, and people are spending relatively more time on the app. What also may not be known to the west is that WeChat's parent, Tencent Technologies, has nearly the same number of active users inside China (800 million active) using its Facebook-like 'QQ zone', as Facebook has globally; yet Facebook cannot compete inside China. Thus, as these two competitors continue to embark on competitive territories, look for Tencent to have the competitive advantage due to already locking down China, and having a more monetizable WeChat app. Tencent is up 142 percent since January 2013, while Facebook is up 133 percent since January 2013.
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. I have no business relationship with any company whose stock is mentioned in this article.