Will Facebook monetize its non-core businesses anytime soon?

Market Realist

Will Facebook monetize its non-core businesses anytime soon? (Part 1 of 6)

Facebook’s other business is growing slower

Facebook’s (FB) advertising revenues increased by a healthy 67% in the last quarter over the corresponding quarter a year ago. But its other business, the payments and other fees business, grew from $214 million to $234 million at a growth rate of 9% during the same period. In this business line, users purchase virtual and digital goods from developers that develop applications on Facebook. Facebook receives a fee from developers when users make payments through its payments interface.

As the chart below shows, revenues from Facebook’s advertising business have grown in importance. This business now contributes about 92% to Facebook’s overall revenues.

During the comopany’s conference call to announce 2Q14 earnings, Facebook’s management said that most revenue from the payments business comes from games. But this payment-related revenue comes mostly from personal computers, which are facing a decline in usage. This is why Facebook’s payments business is showing slow growth.

Facebook made a number of acquisitions in the past year

Facebook has made a number of acquisitions in the past year. These include the mobile instant messaging app WhatsApp for $19 billion, the virtual reality company Oculus VR for $2 billion, and the photo sharing app Instagram for $1 billion.

According to a report from Facebook, WhatsApp had 419 million users in the first four years of its operation, compared to Facebook’s 145 million, Google (GOOGL) Gmail’s 123 million, Twitter’s (TWTR) 54 million, and Microsoft (MSFT) Skype’s at 52 million. This means WhatsApp has huge potential to monetize its user base either through advertising or subscription. That’s why Facebook paid $19 billion to acquire WhatsApp.

Facebook’s non-core businesses—like Gaming, WhatsApp, Oculus, and Instagram—aren’t expected to give material returns to Facebook anytime soon. Then there’s the Facebook Messenger, Internet.org, and video ads businesses, which are also in their infancy. We’ll discuss these businesses in the next parts of this series.

If Facebook manages to monetize these businesses faster, it will benefit exchange-traded funds (or ETFs) like the DJ Internet Index Fund (FDN) that have high exposure to Facebook.

Continue to Part 2

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