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Facebook lifts the lid on how it’s making money from WhatsApp

Since Facebook paid a whopping $19 billion to buy WhatsApp in 2014, investors have wondered how it will cash in on the acquisition, especially after the company walked back a controversial plan to sell ads on the app.

On Wednesday, the company finally provided some details on how it’s using WhatsApp to drive ad sales on its other platforms, Facebook and Instagram.

Businesses that use WhatsApp to communicate with customers and conduct transactions — a group considered key to the app’s future — have since 2017 been able to purchase ads on Facebook and Instagram that include a button allowing users to switch to WhatsApp and initiate a conversation with that business. CEO Mark Zuckerberg said Wednesday there are now 1 million businesses using those “click to WhatsApp” ads.

It’s also launching a new feature: business users will now be able to start creating such advertisements directly from WhatsApp Business app, which wasn’t possible before, making the ad buying process more seamless.

Zuckerberg made the announcement on Facebook’s earnings call for the first quarter of 2021. The company reported total quarterly advertising sales of $25.4 billion, up 46% from the same period in the prior year. It posted earnings per share of $3.30, up 93% year-over-year, on revenue of nearly $26.2 billion. Wall Street analysts had projected revenue of $23.7 billion.

The strong results come despite a slew of issues Facebook faced during the quarter, including fallout from the January 6 Capitol riot and questions about misinformation, continued antitrust scrutiny and privacy concerns after millions of users’ information was posted to a hacker site.

Facebook’s stock rose nearly 6% in after hours trading Wednesday.

New WhatsApp feature

The new feature makes use of the WhatsApp Business “catalogues” — basically virtual storefronts or menu on a businesses’ profile where customers can view their offerings. Business users will now be able to select an item from their catalogue and quickly turn it into a Facebook or Instagram ad with a button directing viewers back to their WhatsApp profile.

Previously, business owners had to go to Facebook or Instagram to initiate the ad buying process.

“For a lot of people, online commerce is less about websites and shops, and more about messaging,” Zuckerberg said. “The next step is to make it easier for businesses to adopt all these services and to give them the tools that can handle messages and customer relationships.”

The new feature is a sign that Facebook is doubling down on its plan not to allow ads directly on WhatsApp. Instead, the app’s future revenue potential is likely to come from offerings, like payments and e-commerce.

“I want to be clear — we have a long way to go to build out a full featured commerce platform across our services, and this is a multi-year journey, but I am very committed to getting there,” Zuckerberg said.

As it develops those new business models, the company is using WhatsApp to bolster its core advertising business.

Still, it’s not clear how much of an impact it’s having. The company didn’t disclose sales from the click-to-WhatsApp ads, and the 1 million businesses using them are a fraction of WhatsApp’s 50 million total business users. (Across all Facebook services, more than 200 million companies use its business tools).

“Over the longer term, there is potential for them to monetize the WhatsApp platform, but that’s going to take time until it’s become a more significant driver [of revenue] but it remains an attractive platform,” Neuberger Berman senior research analyst Daniel Flax said ahead of the earnings report and announcement.

Other earnings details

The first three months of 2021 were good for Facebook’s ad business — with many people still stuck at home, mobile advertising was a popular avenue to reach consumers.

Facebook’s ad sales growth was driven by a 30% year-over-year increase in the average price per ad and a 12% increase in the number of ads delivered, CFO David Wehner said in the release.

“We expect that advertising revenue growth will continue to be primarily driven by price during the rest of 2021,” Wehner said.

The company also reported an average of nearly 3.5 billion people using its family of apps, including Facebook, Instagram and WhatsApp, monthly as of March 31, an increase of 15% from the same period in the prior year.

In the current quarter, Facebook could begin to face headwinds becuase of Apple’s new app privacy policy as part of its iOS 14.5 update.

“The impact on our own business will be manageable,” Wehner said of the update. “We continue to expect it will be a headwind for the remainder of the year, but we’re making good progress … on our own solutions to help advertisers navigate these changes, and that includes helping advertisers work with the Apple API as well as our own approach to using aggregated data for targeting and measurement.”

Article Topic Follows: Money

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