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Facebook's Internet.org Launch in India to Boost User Base - Analyst Blog

Zacks Equity Research

Facebook’s (FB) CEO Mark Zuckerberg appears to be finally fulfilling his promise to offer free Internet to India with the recent launch of Internet.org app in collaboration with Indian Telecom service provider, Reliance Communications. Last year, in July, during his two-day visit to New Delhi, Zuckerberg announced his plans to launch the global Internet project — internet.org — in the country.

Through the Internet.org app, one acquires free access to Facebook, Google (GOOGL), Wikipedia, local information websites such as government services and weather updates. The project primarily aims to offer Internet access to those who cannot afford it. In India, Reliance Communications subscribers in six states can avail news, weather, government information and job listings. Notably, the app will be available in six languages so as to target a larger customer base.

What is Internet.org?

Facebook, in partnership with major phone and equipment makers like Samsung, Ericsson, MediaTek, Nokia (NOK), Opera Software and Qualcomm (QCOM), launched the Internet.org in 2013. The primary focus of the project was to improve Internet services in developing nations.
 
In an era when the Internet has become an indispensable part of infrastructure, limited connectivity in many countries hinders economic development. By offering free Internet, the social networking company will not only help connect people but also facilitate the free flow of information, leading to economic growth. Going forward, Facebook plans to connect over 4 billion people globally through Internet.org.

How Facebook Benefits from Internet.org in India

While Internet.org is an attraction for people in developing countries, it is also helping Facebook expand its reach beyond the established markets, in our view. We believe that Internet.org is one of the ways in which the company is penetrating developing regions, which represent emerging markets for information technology.

India offers massive growth opportunities for Facebook. The country represents the third-largest Internet user base following China and the U.S., with approximately 243 million users. However, the majority of the population, especially in the rural areas, continues to lack proper Internet infrastructure, which is evident by its low Internet penetration level of approximately 19%. This stands in stark contrast to other countries such as China with 46% Internet penetration.  

However, there is ample scope for growth in the country where Internet users have been growing at 14% per annum in 2014, according to Internet Live Stats. Further, India is among the top developing nations with 40% annual mobile Internet revenue growth rate. This compares favorably with approximately 25% growth rate in China and Brazil.  

So we believe Facebook will not only expand its user base with the Indian venture but also gain several avenues to grow its advertising business — the bottom line for all its expansion plans. Currently, Facebook earns most of its revenues from advertising, offering an interactive and engaging platform for advertisers.

Notably, Facebook is the most visited social networking site boasting a massive user base of approximately 112 million in India. In fact, the country represents the only market where Facebook can aim for 1 billion user base, given the massive rate of active user growth.

Conclusion

In the coming days, we expect Internet.org to represent one of the key strategies for Facebook to increase its penetration. As mobile Internet revenue growth rate remains high among the developing nations, we expect Facebook to expand its Internet.org in other emerging markets as well.  

Apart from India, Facebook launched the Internet.org app in three African countries — Zambia, Kenya and Tanzania — and the Latin American country, Colombia.  

Since Facebook has relatively high penetration in most of the developed markets like Japan, the U.K. and the U.S., it now banking on the developing countries to drive its top line. Facebook is also seeking partnerships with wireless carriers in these emerging markets to roll out telecom networks and offer data services at affordable prices to facilitate business growth.

Facebook has a Zacks Rank #3 (Hold).


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