Mark Zuckerberg’s Biggest Bet Might Not Pay Off

The CEO of Meta Platforms (META) will reveal the company’s second quarter earnings this Wednesday instead of doing something more fun like being in Hawaii surfing on his electric board. Between the comments advanced by Mark Zuckerberg and the reduced perspectives of some analysts, the figures of the technological giant will not be the desired ones. He will also have to face the harsh reality of the company’s biggest investment, WhatsApp.

There are numerous problems in the different companies that are part of the Meta group. Faced with the success of its competitor TikTok, Zuckerberg’s other platform, Instagram, is stuck trying to replicate it without the same success. Facebook’s overall growth has slowed as it is unable to capture younger audiences, while the platform’s advertisers are being blocked by Apple Inc .(AAPL) from reaching audiences.

On the other hand, there is WhatsApp, the most used messaging service globally, which was never the most popular in the United States. This green-colored app has some 2 billion active users, yet in Zuckerberg’s world it has been more of a defensive strategy and revenue hole than a moneymaker like Instagram.

In 2012 Zuckerberg acquired Instagram for US$1 billion and the application contributed some US$20 billion to the group’s income in 2019 alone. In contrast, the billionaire bought the messaging platform for $19 billion and it has only contributed a few cents to the group.

It is surprising that eight years after its acquisition, Zuckerberg has still not managed to turn WhatsApp into a minimally profitable business. The instant messaging application, created in 2009, was initially financed with an annual subscription of 99 cents on the dollar, since its founders despised advertisements. Once it was sold, they both ended up giving up on how Meta was trying to monetize the app with advertising. However, in 2020, the group backtracked on this idea, stating that it would test charging companies for interacting with customers on the app.

For a moment it seemed that WhatsApp could become the center of Meta’s future as a business. In March 2021, Zuckerberg himself announced his “privacy-focused vision for social networks” and predicted a future in which communication would move to private services such as the messaging service.

Within seven months, Zuckerberg’s vision had changed and he declared that the future of the Internet lay in the immersive world of the metaverse, which represented the “next chapter” for the newly named Meta. Beyond an announcement about the launch of a new chat service for customers on WhatsApp in May, he has said little about messaging since then.

In the Meta hierarchy, WhatsApp’s place has swung like an electric surfboard. Today, with Zuckerberg determined to pivot to virtual reality, the app’s real value probably comes from something more ignoble than making money as a viable business. It will surely be the sacrificial offering Zuckerberg needs to fend off antitrust regulators.

This would explain Zuckerberg’s lack of momentum to turn WhatsApp into a growth company. The difficulty has never been that it is too difficult to get money from the courier. After all, Tencent Holdings Ltd.’s (TCEHY) WeChat, a Chinese messaging competitor, generated more than $500 million last June alone, according to an estimate by market intelligence firm Sensor Tower, much of it from payments. , advertising and for acting as a gateway to the games.

Zuckerberg’s primary motivation for acquiring WhatsApp was to prevent it from becoming a competitive threat, according to mounting evidence from antitrust regulators such as the US Federal Trade Commission. Facebook executives even worried about how the instant messaging service could threaten their business after it was acquired, according to a Bloomberg report last week. This doesn’t look like a parent company with big plans for its subsidiary.

Currently, to counter the FTC regulator’s attempt to force the company to divest both WhatsApp and Instagram as part of a lawsuit against the firm, Meta’s lawyers could push for a settlement that includes the exit of only a. If you do, you can probably guess which company Zuckerberg would prefer to divest.

How could a WhatsApp sale work in practice? Without substantial revenue, an IPO would be off the table. Meta could sell to a private equity consortium, or to a company like Microsoft Inc (MSFT) that has indicated an interest in buying a messaging business in the past, and (somewhat strangely) has managed to make a number of big acquisitions. in recent years without arousing real scrutiny from antitrust agents. If the eventual IPO of Arm Holdings by Softbank (9884) proves fruitful and Masayoshi Son decides to bring his own approach from artificial intelligence and the Internet to the world of messaging, he too could be a potential buyer.

98% of Meta’s revenue comes from digital advertising. Meta, like Alphabet Inc’s Google (GOOGL), is deep in business. While Microsoft and Amazon Inc. (AMZN) have managed to diversify into cloud computing and gaming, Meta hasn’t managed to do the same with cryptocurrency, e-commerce, and of course messaging.

Perhaps the metaverse will be different and Zuckerberg will find a way to pivot his thriving advertising business into virtual reality. Now, the humiliating change in the value of WhatsApp, from potential business to Meta’s most likely regulatory offering, underscores just how shaky that vision is.

This note does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

We wish to say thanks to the author of this write-up for this remarkable material

Mark Zuckerberg’s Biggest Bet Might Not Pay Off