Morningstar

Meta: WhatsApp Ads Stand to Add Incremental Ad Inventory, Supporting Top-Line Growth

Meta has increasingly looked for new pieces of digital real estate to show ads.

Meta logo is displayed during the Viva Technology show.
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Securities in This Article
Meta Platforms Inc Class A
(META)

Key Morningstar Metrics for Meta Platforms

On June 16, Meta Platforms META announced that it will begin placing ads on WhatsApp, a messaging app with over 3 billion monthly users. The ads will show up on the Updates tab, a feature used by more than 1.5 billion users daily.

Why it matters: Meta has two primary levers to increase ad sales: price and volume. While price can be indirectly increased over time by honing algorithms to increase return on ad spending, Meta has more explicit control over volume, as it can choose to surface more ads on its platform.

  • With ad loads (the number of ads shown) quite high on saturated products such as Facebook and Instagram, Meta has increasingly looked for new pieces of digital real estate to show ads. After the firm announced plans for ads on Threads earlier this year, WhatsApp is next on the monetization schedule.
  • Meta has a proven track record of gradually monetizing its applications after building up a strong, sticky user base. While WhatsApp’s monetization timeline has been significantly longer than that of other apps and products, such as Threads, Stories, and Reels, we view Meta’s change as a strategic move.

The bottom line: We maintain our $770 fair value estimate for wide-moat Meta, with WhatsApp monetization already baked into our growth forecasts. With shares trading up on the news of WhatsApp monetization, we view them as marginally undervalued.

  • With the firm claiming only to use data such as location, language, and interactions with ads on WhatsApp, we believe its monetization will likely lag that of Instagram and Facebook. Those apps have vastly more data that can improve the return on ads for advertisers.
  • Further, while WhatsApp has more than 3 billion monthly users, a considerable portion of them reside in low-monetization geographies, further damping average revenue per user profile.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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