Facebook: So Much Chatter Over Messenger Apps

| About: Facebook (FB)


WSJ came out with an article outlining the potential impact to ecommerce via messenger apps.

FB remains the best positioned in North America given its potential disruption to multiple sectors.

Current valuation of 35x is reasonable given its near-term outlook in ads, messenger and long-term outlook in Oculus.

The Wall Street Journal came out with an article (WSJ subscription required at link) talking about how ecommerce could potentially be the future of mobile messenger apps. Although the evolution of mobile messenger apps in Asia such as WeChat, LINE and Viber is widely documented, I still believe the market does not give credit to Facebook (NASDAQ:FB) and the potential expansion of its Messenger and WhatsApp platforms.

In my view, FB's focus on building up Messenger will have negative implications for several sectors including telecom, ecommerce, financial services and media. With over a billion active users who are highly engaged to the FB platform, FB is my preferred tech company for 2016 (see - Facebook 2016 Outlook). I remain bullish on the stock and the current valuation of 35x 2016E earnings is reasonable given its growth outlook and potential upside in Oculus in 2H16 and beyond.

The evolution of mobile messenger apps in China has simplified consumers' lives in that the app is becoming an all-in-one service provider where people can conduct mobile payments, mobile commerce, VoIP, and consume media content (i.e., short clips and news articles). Although the evolution is not as pronounced in North America as it is in Asia, the good news is that FB is driving this trend with the recent integration of Messenger with Uber (Private:UBER) and the addition of local services into its mobile app. Given FB's mobile user base, the company is studying Tencent (OTCPK:TCEHY) closely to transform FB Messenger to resemble that of WeChat. This would have negative implications in telecommunication, financial services, ecommerce and media, in my view.

In telecommunication, FB Messenger already allows users to conduct calls over data. With major cities such as New York adding hundreds of free WiFi hotspots and the growth of large data bucket wireless plans, VoIP over FB could further commoditize wireless voice ARPU, which surprisingly still accounts for 30-40% of the carriers' reported blended ARPU. Additionally, FB Messenger's VoIP service will continue to erode traditional wireline telephone services and drive down cable/telecom operators' pricing power in the triple-play bundle.

In financial services, I have often argued that FB's experiment with P2P payment is a negative to Apple (NASDAQ:AAPL) Pay (see - Apple 2016 Outlook: The Sun Can't Shine Everyday) in that the North American payment market does not have a defined leader, making it open to all the potential contenders including FB, Samsung (OTC:SSNLF), Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and PayPal (NASDAQ:PYPL). FB could disrupt the payment market by leverage QR code technology in Messenger similar to that of WeChat to drive payments at various merchants by leveraging its unrivaled network effect. This could potentially be a negative to AAPL as its own payment service is facing slower than expected ramp up. Besides payments, the entry into robo-advisor or other financial/wealth management services is a distinct possibility as FB looks to disrupt the conventional financial sector.

FB's entry into local services with an ecommerce function built-in is a clear threat to C2C ecommerce platforms such as eBay (NASDAQ:EBAY). Not only can FB better define the sellers and buyers on its platform due to its rich database, but offering local ecommerce solution is a smart strategy to drive penetration of its own payment platform. More important, FB's local services could potentially be the catalyst that drive online-to-offline (O2O) growth here in North America that spans across areas such as group-buy, ride-hailing, food/grocery delivery and expert requests (i.e., trainer, doctor, lawyer). This trend has been well-developed in Asia but less so in North America. I believe FB will drive this growth.

Finally, FB has been ramping up on online video as well as news content and I believe the migration of this content is a negative to conventional pay TV as well as print media, as both are already feeling the pain from the ad dollar shift online. Judging by how many Chinese are consuming news content via WeChat by following the official accounts of their respective news provider (similar to how people here follow NY Times on Twitter (NYSE:TWTR)), I would not be surprised to see FB offer similar services here in North America.

In summary, the WSJ article reinforces my view that FB is best positioned to capitalize on the mobile messenger trend and it has the ability to leverage its network effect and user base to disrupt multiple conventional sectors. I reiterate my bullish view on FB's stock.

Disclosure: I/we 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.