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WhatsApp Is a $100 Billion Company Once It Starts Monetizing

Feb 25 2014, 4:04am CST | by

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WhatsApp Is a $100 Billion Once It Starts Monetizing
 
 

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WhatsApp Is a $100 Billion Company Once It Starts Monetizing

What’s a mobile messaging app user worth?  And just what differentiates a messaging app from a cheap voice calling app?  The answer to both these questions is worth billions and billions of dollars, especially after Facebook’s acquisition of WhatsApp last week.

Mark Zuckerberg paid $19 billion for WhatsApp in cash and stock.  WhatsApp has 450 million users. Hence, Facebook paid $42 per user.

Is that price high or low?

A week before the WhatsApp deal, Japan’s Rakuten bought Viber for $900 million.  Viber claims to have 280 million users.  That suggests they only paid $3.21 per user.  Why so different?

Well, firstly, I’ve heard that that 280 million user number is inaccurate and that the number is closer to 100 million users.  Even if that’s right, Rakuten only paid $9/user instead of $42. Why?

In my view, Viber is not a messaging app.  It’s a Skype clone that makes cheap overseas phone calls.  It’s calling first with a little bit of messaging.  That’s different than WhatsApp – or Line – which is messaging first with a little bit of free calling (WhatsApp just announced they’d support free calling today).

These legacy Voice-over-IP cheap calling apps like Viber, Skype and Tango will never be seen as “messaging apps” as I see it.  It’s also why none of the old Web companies like Yahoo, Microsoft, and Google can take their old “chat” apps, wave a magic wand, and call them messaging apps.  They are different products created at different times for different use cases.  They’re also worth dramatically less per user than the messaging apps.

So, the big messaging apps still alive and kicking post-Facebook acquisition are: Line, WeChat, Kik, KakaoTalk, and BBM.

Is $42 per user the formula you should apply to all of them?  Not necessarily.

When the news broke last week about the price Facebook paid for WhatsApp, Tencent’s (the owner of WeChat) stock price in China and Naver’s (the owner of Line) stock price in Korea dropped.  This wasn’t because these investors worried about having to go up against Facebook in their geographies now.

According to Nomura, the reason for the initial drop is that investors overseas had already assigned a valuation to Line of $73 per monthly active user (MAU).  Back in November, Line said it had 300 million registered users which was up from 200 million a year prior.  They also said they were hopeful they could get to 500 million registered users by the end of this year.

If you assume that Line will be at 300 million MAUs by mid- this year, this implies Line is worth $22 billion right now.  I’ve heard that Line will seek a $30 billion IPO by June of this year.  If they are able to get to 500 million by next year (in MAUs, not just registrations), it suggests that Line’s value will grow to $36.5 billion.

If you think that $73 per MAU sounds like a lot though, Nomura calculates that each WeChat MAU is worth $231.  They assume that half of Tencent’s current valuation of $140 billion is from WeChat’s growth in the last year.  So, WeChat itself is worth $70 billion.  WeChat currently has around 300 million MAUs.  That’s a heck of a lot more than the $19 billion for WhatsApp that everyone in the Valley is agog over.

How can it be that WeChat’s users are worth $231 per MAU, Line’s are worth $73, WhatsApp’s are worth $42 and Viber’s are worth $9?

In North America, we’ve been told that Western users are worth more than international users.  That’s why Sina Weibo will only get a $3 – 5 billion valuation when it IPOs in a few months compared to the current $32 billion valuation for Twitter.  That’s even though Sina Weibo has a similar number of monthly active users as Twitter.  It turns out that an international user is only worth less than a Western user if you only sell ads.

It all comes down to monetization of those users.  The Asian messaging companies are vastly ahead of the North American messaging companies in terms of how they monetize.  Therefore, the investors who know them best over there value them higher.

Unlike in America, where the only way we seem to monetize a consumer app is through shoving ads at us constantly, over there, WeChat and Line make money through selling stickers, games, and also buying things.  For example, you can now pay for taxis and food in China through the WeChat app.  In Thailand recently, Line did a group-buying flash sale which was incredibly successful.  It turns out, if you aggregate the users, you can sell to them.  Ads are not really part of this equation.

So, if you think that Mark Zuckerberg is smart – and he’s given you no reason to think otherwise – you can see why he might be excited about giving up 11% of his company and paying $19 billion for WhatsApp.  Let’s assume that WhatsApp will continue to grow like a weed and hit 1 billion users in a year or two.  Then, let’s assume they start to get at least as good as Line at monetizing their users.  WhatsApp will then be worth $73 billion instead of $19 billion.  If they get as good as Tencent, they will be worth significantly more than that.

There are also some other significant implications of the above math for others in the messaging space.

KakaoTalk has 130 million users and is now working on plans for an IPO.  Its growth has plateaued recently as they’ve saturated Korea.  It’s discussed a potential $2 billion IPO this year.  That would only put a value on their users at just over $15.  To get a WhatsApp-type multiple, the service would be worth more than $5 billion.

Kik has 100 million users with no known plans to IPO.  It’s been most successful with those who have yet to get a mobile phone in North America.  It’s also been doing really well in India of late too.  It still is showing strong growth and has been very innovative in terms of embracing HTML5 to allow for better in-app experiences of playing games, doing searches and finding other information.  It’s worth $4 billion if it never monetizes and over $7 billion if it starts to get its act together in the way Line has.

And what about Blackberry’s BBM?  The grand-daddy of messaging apps is still around and kicking.  It’s not really clear what its MAUs are.  Going cross-platform last Fall was thought to take their users from 60 to 80 million.  Some think it’s now up to 100 million.  But I would guess that are total registered users and not MAUs.

Even though it seems apparent that BBM usage has fallen off significantly in North America, the service appears to be still extremely popular overseas in geographies like Malaysia, Indonesia, and the Philippines.  In these areas, BBM engagement is extremely high increasing the potential monetization power from each user.

BBM is a funny product.  Its leader just quit (or was pushed).  Its been moved under BlackBerry’s Enterprise Head John Sims and seems to be useful in new CEO John Chen’s pitch about enterprise security. Yet, BBM just started selling stickers over the weekend and is growing well internationally among consumers, not enterprise users.  BBM also just announced it would become available on Windows Phone later this summer.

Is it a consumer play or an enterprise play?  It seems to be both.

To me, it wouldn’t surprise me at all if someone approached BlackBerry in the coming months and asked to buy BBM from them.  Google, Yahoo, or Microsoft would be crazy not to take a long look at BBM.  Depending on what the MAU number is, you could get a valuation for just BBM of between $3 – 4 billion at a WhatsApp-type number.

And all these assume no monetization, if anyone starts to do just a little bit of monetization, you can up all these valuations by almost double.

[Long BBRY and YHOO]

Source: Forbes

 

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