Deutsche Bank Expects 'Windfall' from Facebook's (FB) Messaging Apps

Deutsche Bank reiterated a Buy rating on Facebook (NASDAQ: FB) with a price target of $100. Analyst Ross Sandler sees massive opportunity in WhatsApp and Messenger.

"We see FB’s messaging apps as the next major wave of innovation and financial windfall for the company. In this note, and our companion report titled “The Economics of Global Messaging” also published today, we quantify the opportunity as ~$9-$10B in incremental revenue by 2020 from these two properties. Messaging apps are proving to be the starting point in mobile with very high engagement, a strategic position that should reap enormous benefits as FB builds out platform capabilities like those seen today in APAC. The opportunity is massive, and we think shares should get out of their current rut as investors start to grasp the enormity of messaging," said Sandler.

The analyst added, "We see 2B+ active users by 2020 generating $3 in advertising ARPU for $9B- $10B in revenue coming from these two platforms in 2020 (slightly above current Korea/Japan peer ARPU and compared to $12 for core FB newsfeed, $4 in ROW and $6 in APAC). Importantly, Games and Digital Content, O2O, Payments and other forms of monetization deployed by some of its peers are NOT included in our revenue build, and could potentially add more upside to our base case. Further, assuming that the incremental messaging revenues will have a 70% EBITDA flow through, which we expect to be above the company’s current ~60%, hence EBITDA dollar contribution from messaging could approach $7 billion or 25% incremental to the core run rate. We don’t think FB’s valuation or consensus estimates bake in the size or potential upside from WhatsApp and Messenger."

For an analyst ratings summary and ratings history on Facebook click here. For more ratings news on Facebook click here.

Shares of Facebook closed at $84.74 yesterday.

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