Meta Platforms: Mark Zuckerberg Strikes Back (NASDAQ:META)

After receiving a wave of constructive criticism from shareholders for his desire to double-down on the unprofitable metaverse project, Meta Platforms, Inc. (NASDAQ:META) CEO Mark Zuckerberg recently made a number of statements that are more than likely be able to begin restoring investors’ confidence after more than a 50% decline in the company’s share price since the start of the year.

Currently, there are signs that Meta is not only focused on improving its core products such as Facebook and Instagram, but it’s also preparing to finally begin monetizing its messenger products Messenger and WhatsApp, which are heavily used by users across the globe but don’t bring significant profits to this day.

While there’s a great consensus among many investors that the company should’ve done so a long time ago, such a decision nevertheless is more than likely be able to help the company generate greater than expected returns and mitigate some of the risks caused by Apple’s (AAPL) iOS 14.5 update that significantly hurt its financials.

As Meta is looking for ways to reinvent itself with the help of its core products, this article aims at highlighting the opportunities that the monetization of its messenger apps would bring to the table and what investors should expect in the future.

Focusing On Core Products Is The Way To Go

More than a month ago, I wrote a detailed article about Meta’s metaverse project and explained why I think that in its current form it’ll continue to burn a significant amount of funds without having even the prospects of recouping them anytime soon. Such a view is shared by a lot of the company’s investors, which were disappointed that the leadership failed to properly explain how and when the investment in the metaverse will begin to generate returns during several meetings with the top shareholders.

While Meta is still on track to burn over $10 billion on its metaverse play this year alone, the good news is that the company’s management and its CEO in particular decided to finally address the criticism and try to restore investors’ confidence in late November when Mark Zuckerberg appeared on the annual DealBook Summit. There, Mark Zuckerberg made it clear that Meta’s focus will be to continue to improve the company’s core products such as Facebook and Instagram, which generate most of the business’s profits.

This change of tone indicates that Meta has finally started giving the right signals to the market and its shareholders, which is something that the company was failing to do a couple of months ago, which resulted in a significant depreciation of its shares due to mixed signals from the management.

At the same time, from a business perspective, it makes perfect sense for the management to focus its attention on growing products that are responsible for the company’s sole existence in the first place. While earlier the company’s management noted that due to the change in Apple’s privacy policy known as ATT Meta is expected to lose $10 billion in potential revenues this year alone, there’s an indication that that figure would be smaller primarily because of the success of a short-form video product known as Reels. At the latest earnings call, Meta’s management noted that Reels are on track to generate $3 billion in revenues this year, up from the estimates of $1 billion that were made in the summer.

On top of that, despite the macroeconomic headwinds, the digital advertising industry nevertheless is expected to grow in the following years at a decent rate, which should help Meta mitigate the downside caused by the change in the policy of third parties.

Another important take from Mark Zuckerberg’s appearance at the Summit was his commitment to work on the monetization of the company’s messaging apps Messenger and WhatsApp. Back in 2014, Meta bought WhatsApp for $16 billion but to this day hasn’t managed to properly monetize it although the app has over 2 billion daily users. Mark Zuckerberg himself admitted during the interview that WhatsApp monetization opportunities are largely still untapped to this day.

This is a pretty important development, which hasn’t been widely covered by other authors here, as the growth of Reels along with the ongoing monetization of Messenger and WhatsApp have all the chances to mitigate the downside caused by the implementation of ATT by Apple over the long run. At the same time, this could lead to the improvement of the efficiency of the company’s overall advertising tools, which would create an incentive for advertisers to stick with Meta.

During the latest conference call, Mark Zuckerberg noted that the company recently started to test click-to-messaging ads that have been highly effective and have been generating impressive returns so far by saying the following:

We started with click-to-messaging ads which lets businesses run ads on Facebook and Instagram that start a thread on Messenger, WhatsApp or Instagram Direct, so they can communicate with customers directly. And this is one of our fastest growing ads products with a $9 billion annual run-rate. And this revenue is mostly on click to Messenger today since we started there first, but click to WhatsApp just passed a $1.5 billion run rate and growing more than 80% year-over-year.

Considering that WhatsApp is the third biggest app within Meta’s family of apps after Facebook and Instagram with a similar number of users, but it generates less than $2 billion in revenues through click-to-messaging ads out of over $100 billion in revenues that the company generates annually, and it becomes obvious that its potential is still not fully realized. That’s why it makes full sense to focus on monetizing the company’s messaging apps and why the management in addition to the click-to-messaging ads has noted that it also looks to implement paid messaging ads on a broader scale.

At the same time, the good news is that earlier this year Meta partnered with one of the fastest-growing Indian eCommerce companies JioMart, which has made WhatsApp its primary messaging app and as a result managed to instantly connect with its existing 400+ million client base. This has also helped it to more successfully compete with Amazon (AMZN) within the Indian market.

Going forward, the messaging monetization opportunities for Meta appear to be endless. The successes of WeChat in China and JioMart in India along with an aggressive growth of click-to-messaging ads in recent quarters indicate that WhatsApp along with Messenger have a real possibility of helping Meta recover from the losses caused by the change of Apple’s privacy policy and help the business restore investors’ confidence in months to come. The same can’t be said about its metaverse projects.

What’s Next?

Meta’s problem of recent months was a clear lack of communication with shareholders, which coupled with unexplainable investments into the money-losing metaverse project led to a significant depreciation of the company’s shares. With Mark Zuckerberg finally addressing the major issues recently and reiterating the importance of focusing on growing core products that include the monetization of the company’s messaging apps, it becomes obvious that Meta is trying to restore investors’ confidence in the business.

The successes of the click-to-messaging ads in recent quarters along with the desire to release paid messaging on a greater scale certainly have all the chances to minimize the losses caused by the implementation of the ATT by Apple and at the same time help Meta to better tackle the threat that comes from Amazon’s own advertising business.

Thanks to all of those recent developments, it’s safe to say that Meta’s shares now have more opportunities to grow in the foreseeable future. Back in November, I already made two DCF models, which showed that the company’s fair value is $161.37 per share and $196.89 per share in the base case and an optimistic case, respectively. If we continue to witness the scaling of the monetization of messaging apps, then there’s a real possibility that the company would be able to reach the value from the optimistic case.

In either case, Meta’s shares nevertheless trade at a discount currently and the clear communication from the management and Mark Zuckerberg in particular certainly could help to start restoring the investors’ confidence in the business.

The Bottom Line

Despite all the chatter that Meta’s Facebook and Instagram are dying, the company continues to increase the number of users that use its core products on a daily and monthly basis. The same is also true for WhatsApp, which continues to be one of the most popular messenger apps around the globe to this day. Its potential monetization has all the chances to improve Meta’s overall financial performance and mitigate some of the downside caused by the change of policies of third parties or by the losses of the company’s own non-core projects.

At the same time, such a decision would more than likely restore investors’ confidence in the business and could potentially help Meta’s shares to appreciate over time given the fact that the company’s stock already trades at a significant discount to its fair value.