Investors have been wondering how Facebook would profit from its $19 billion purchase of WhatsApp since 2014, particularly after the company backed out of a controversial proposal to sell advertising on the app.
The company finally revealed how it’s using WhatsApp to push ad sales on its other sites, Facebook (FB) and Instagram, on Wednesday.
Businesses who use WhatsApp to connect with consumers and perform transactions — a community that is deemed critical to the app’s future — have been able to buy advertisements on Facebook and Instagram that include a button that directs users to WhatsApp and start a conversation with that business since 2017. According to Facebook CEO Mark Zuckerberg, 1 million companies are now using the “press to WhatsApp” advertising.
It’s also introducing a new feature: business users will be able to create such ads directly from the WhatsApp Business app, which was previously unavailable, making the ad buying process more seamless.
On Facebook’s earnings call for the first quarter of 2021, Zuckerberg made the announcement. The company posted overall quarterly advertisement revenue of $25.4 billion, up 46% from the previous year’s same time. On sales of nearly $26.2 billion, it earned $3.30 per share, up 93 percent year over year. Revenue was expected to be $23.7 billion, according to Wall Street analysts.
Despite a slew of issues throughout the quarter, including fallout from the January 6 Capitol riot and doubts about disinformation, continued antitrust pressure, and privacy concerns after millions of users’ data was leaked to a hacker platform, Facebook delivered good performance. In after-hours trading on Wednesday, Facebook’s stock grew nearly 6%.
The new function allows use of WhatsApp Company “catalogues,” which are essentially virtual storefronts or menus on a business’s profile where consumers can see what they have to sell. Business users will be able to easily transform an item from their catalog into a Facebook or Instagram ad with a button that directs 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.”
A new feature in the WhatsApp Business app will enable business owners to create “click-to-WhatsApp” ads that will run on Facebook and Instagram.
The new feature indicates that Facebook is sticking to its decision not to allow advertising on WhatsApp directly. Instead, future revenue for the app would most likely come from services 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.
The company is using WhatsApp to bolster its core advertisement market as it develops certain emerging business models.
It’s also unclear how much of an impact it’s having. The company did not reveal revenue from the click-to-WhatsApp advertisements, and the 1 million companies that use them are a small part of WhatsApp’s overall enterprise user base of 50 million. (Over 200 million businesses use Facebook’s business resources across all of its services.)
“Over the longer term, there is potential for them to monetize the WhatsApp platform,” Neuberger Berman senior research analyst Daniel Flax said ahead of the earnings report and announcement. “But that’s going to take time until it’s become a more significant driver [of revenue] but it remains an attractive platform.”
With many people still stuck at home, Facebook’s ad business did well in the first three months of 2021. Mobile advertising was a popular way to reach consumers.
According to CFO David Wehner, Facebook’s ad revenue growth was fueled by a 30 percent year-over-year rise in the average price per ad and a 12 percent increase in the amount of ads produced.
“We expect that advertising revenue growth will continue to be primarily driven by price during the rest of 2021,” Wehner said.
As of March 31, nearly 3.5 billion people were using the company’s family of applications, which includes Facebook, Instagram, and WhatsApp, on a monthly basis, up 15% from the same timeframe the previous year.
Because of Apple’s updated software privacy policy, which was released as part of iOS 14.5 update, Facebook could face headwinds in the current quarter.
“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.”
