Facebook: Thank You Messenger, Let The Monetization Begin

| About: Facebook (FB)

Summary

FB Messenger has reached the magical 1 billion threshold where monetization starts to make sense.

Expect payment-focused functions to take off initially given the proven business model from Asia. Ad-focused monetization could come later.

Less enthusiastic about the monetization potential of chatbot. FB is the ultimate beneficiary on user/engagement retention but monetization is hard to come by.

Facebook (NASDAQ:FB) announced that it now has 1 billion MAUs on its FB Messenger platform and I believe that the company will begin to look for ways to monetize the FBM given that the 1b mark has always been the minimum threshold for FB to consider monetization. Judging by the progression of FBM relative to that of its Asian peers, FBM has seriously fallen behind in terms of functions and ecosystem. However, I believe that will soon change given FBM's existing user base and the available tools that FBM can utilize to monetize this platform and more importantly, bridge the gap between its Asian peers. As FB's core social networking platform reaches maturity, the company will have to look for ways to monetize its other assets to drive future growth and I believe that FBM will be an important component of the company's long-term progression, given the engagement shift towards messenger apps. I remain bullish on FB as I believe that FBM monetization has not been factored into the estimates, so there is certainly upside risk to 2017 and 2018 consensus estimates.

If Tencent's WeChat or Korea's LINE (NASDAQ:LN) are any indication, I believe that FB could replicate their model by building out FBM's ecosystem that involves financial services (ie. payments), transportation (ie. Uber) and ecommerce (ie. Amazon). Mobile payment-related services such as hotel/air booking, taxi booking and entertainment are the most likely areas FB could potentially offer. Hotel/air booking are natural derivatives of mobile service given that travelers often book on the go, so a partnership with Priceline (NASDAQ:PCLN) or Expedia (NASDAQ:EXPE) makes a lot of sense. On the transportation front, FB Messenger is already working with Uber, and such service is likely to be extended to FB similar to that of Tencent's WeChat's integration with the Didi-Kuaidi taxi app. Finally, entertainment such as restaurant booking via Yelp (NYSE:YELP) or OpenTable, or partnerships with movie theaters for ticket booking could eventually be added.

In my view, focusing on payment-oriented functions not only rejuvenate FB's payment service which has been sluggish in recent years due to the declining popularity of its games but also build a competitive payment platform that one day could potentially rival Google and Apple Pay. (see - Facebook: Building up its payment network)

Monetization could come from charging a transaction fee (most likely around 25-50bps) that will make FBM a competitive payment platform and position it to drive long-term revenue growth. Ultimately, I see FB's mobile messengers eventually replacing credit cards at point of sales via QR-code scan so payments are routed directly from the user's FBM account to the merchant. This feature is already being used by Tencent and Alibaba in stores across China and I believe that it is only a matter of time before it is rolled out in the U.S. (see - Alibaba: Setting An Example In Mobile Payments).

Finally, much has been discussed about chatbots (see - Facebook: How Bots Are Changing Our Lives) and although I am quite positive on this technology as a user and engagement retention tool for FB, I am less enthusiastic on its monetization potential in that any form of in-chat advertising could negatively impact the user experience and result in minor user churn. At best the chatbot benefits FB in that it allows brands to keep the users engaged on the messenger but at this point it is still uncertain as to how FB could monetize chatbot given that monetization in payment function is a proven method as I have outlined above.

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.