Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Key Morningstar Metrics for Meta Platforms
On June 16, **Meta Platforms** META made a significant announcement: the introduction of **ads on WhatsApp**, a messaging giant boasting over **3 billion monthly users**. These ads will make their debut in the **Updates tab**, a feature that engages more than **1.5 billion users daily**.
Why It Matters
For Meta, increasing ad sales hinges mainly on two powerful levers: **price and volume**. While pricing is subject to gradual adjustments through sophisticated algorithm enhancements aimed at optimizing **return on ad spending**, **volume control** is far more straightforward. Meta can actively decide how many ads to display across its platforms.
Expanding Ad Inventory
- With ad loads already reaching saturation on platforms like **Facebook** and **Instagram**, Meta is on the hunt for fresh digital real estate to monetize. After unveiling ad plans for **Threads** earlier this year, now it’s **WhatsApp’s** turn.
- Meta’s history confirms its methodical approach to monetization, gradually rolling out ads after establishing a robust and engaged user base. Though the monetization journey for WhatsApp has been notably prolonged compared to other applications like **Threads, Stories**, and **Reels**, this strategic pivot signals a promising future.
The Bottom Line
We maintain our **$770 fair value estimate** for Meta, acknowledging that WhatsApp’s monetization is already reflected in our growth forecasts. Following the announcement, shares have seen an uptick, leading us to consider them as **marginally undervalued**.
Monetization Challenges Ahead
- Despite Meta’s claims to utilize data points like **location, language**, and **interactions with ads**, it’s likely that WhatsApp’s monetization will trail behind that of Instagram and Facebook—platforms with a richer data pool to boost ad performance.
- Furthermore, although WhatsApp enjoys a staggering **3 billion monthly users**, many of them are located in **low-monetization regions**, which may further suppress the overall average revenue per user.
The author or authors do not own shares in any securities mentioned in this article.
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