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Will Facebook Become the Next Telco?

So yesterday, the creators of Instagram resigned. There’s no ‘official’ reason as to why, but if Facebook (FB) were actively releasing new features that open FB from Instagram and effectively take users away from Instagram, you’d probably be a little upset. I mean, look what happened when FB wanted to release adds on WhatsApp. In case you missed it, both founders left over this and the concerns over the Cambridge Analytica scandal that now has its own Wiki Page. If that seemed a little anti climatic, both founders of WhatsApp left Facebook with $1.3billion in unvested stocks options. 

Note:When a startup receives investment or gets bought out (like FB buying WhatsApp) but the founders and staff are retained to run the company, the founders are often required to vest their shares - think like escrow for shares. For each month, year, set time frame you stay with the company or set KPIs you reach, you earn back your shares. These shares that carry conditions are known as unvested stock options. The aim is to keep the founders in the company and running it to protect the interests and investment of the investor.

So, not only did Brian Acton, one of the co-founders of WhatsApp, walk away from $900 million in unvested shares, he also donated $50 million to a rival messaging app. Suffice it to say, they didn’t leave on the best terms. 

Back to Instagram, FB doesn’t release separate financial information for the firm, but Instagram broke through the 1 billion monthly active user barrier in June, and eMarketer estimated it would generate 70% revenue this year, so about $5.48 billion. The founders leaving could shake down Facebook’s user growth, revenue and share price. For investors, FB’s share price has returned only 1.56% this year and it’s been a wild ride to get that minimal ROI (return on investment).

Back in July this year, FB announced that as of June 2018 they have 2.5 billion people that use at least one of their apps: FB, Instagram, WhatsApp or Messenger. This excludes people with multiple accounts.

Breaking down the number of people on each app, there are: 

  • 2.23 billion monthly users on Facebook

  • 1 billion users on Instagram

  • 1.5 billion users on WhatsApp

  • 1.3 billion users on Messenger.

In Q4 2017, FB saw its first-ever reduction in the number of users in the US and Canada. Daily active users fell by 700,000. As of June 2018, the user count shrank in Europe and was flat in the U.S. and Canada, contributing to extraordinarily low monthly and daily user growth.

Despite user growth dropping, the average revenue per user has grown four times between 2012 and 2016 in markets across the rest of the world. It’s why FB is likely looking to push further internationally, where many populations and prospective consumers still lack access to the internet. FB’s Express WiFi will likely be a crucial component of FB’s growth plans in the near future and it’s not their first foray into Telco like offerings.

So, what is Express WiFi? Earlier this year, FB quietly rolled out an Android app for a WiFi service that lets users pay for high-speed internet connectivity at specific partner locations, meaning local businesses (think Airbnb style WiFi).

Express WiFi was originally launched in India in November 2016, before being rolled out to more than 700 hotspots across the country in May last year, and then to four more countries – Kenya, Indonesia, Nigeria, and Tanzania. 

James Beldock, FB’s product manager for Express WiFi, stressed thatWiFi is a far easier onramp to the internet than most other means of getting online. After all, you don’t need a SIM card or data plan to go online. It also offers a low-cost way of getting online (with daily, weekly or monthly data packs) and the partnership with local entrepreneurs that host the Express Wi-Fi (the Airbnb style internet mentioned above) could help the local economy.

So, here’s why I think FB should become a Telco:

FB users are dropping off, but their users are growing on Messenger and WhatsApp, both platforms offer free texting with Android users being able to read and respond to actual SMS’s inside FB Messenger. FB also reported that 91% of teens and 80% of adults message daily. FB messenger chatbots have a 98% open rate and are now capturing B2C (business to consumer) communication.

Both Messenger and WhatsApp platforms also have VOIP (voice over internet protocol) which basically means free calls both locally and internationally. 

FB’s foray into Express WiFi could be beneficial to developed countries and not just emerging markets. I mean how many of us travel and search for WiFi over extortionary Telco data changes just to upload photos of our holiday?! And with the demand on Instagram, I think a few of us could be interested in some low-cost FB WiFi.

What’s more, if FB partnered with Apple and Google, I think a low-cost FB phone plan that gives you a local number in any country (like the TransferWise of phone numbers) could drive their revenue, user growth and share price upwards.

5 years ago FB said they wanted to be a utility, read more about it here. Zuckerberg also said, “Our society needs a new digital social fabric, we can help build it.”

They’ve got all the calling signs of a Telco and a user base that’s heavily reliant on their Telco like services already. Let’s not forget that society is almost begging for a disruptor in the Telco space. 

Someone was on the money when they called the FB movie ‘The Social Network’.

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Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.

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