MorningWord 2/21/14: WhatsApple Gonna Do? $AAPL $FB

by Dan February 21, 2014 9:52 am • Commentary

In the time between AAPL’s fiscal Q1 earnings disappointment and its 8% plunge on February 6th, the company acquired $14 billion of its own shares, an amount almost equal to what Facebook agreed to pay for WhatsApp ($4 billion in cash and $12 billion in stock, excluding future earn-outs of $3 billion in restricted stock).  While many AAPL shareholders would like the company to make a bold move in a sort of transformative direction, the company’s answers to investors’ nagging questions about the future could lie internally rather than externally.  Maybe that is the bet that Tim Cook is making.

Those familiar with AAPL’s history remember the missteps of the ’80s and ’90s.  The company’s reluctance to license what most felt by all accounts was a superior operating system to Windows was the crushing blow, and nearly sent the company into financial ruin.  While most market participants are focused on what Google, Yahoo, Twitter and Microsoft’s reaction will be to FB’s latest social messaging acquisition, I would argue it is AAPL who could make the $19 billion price tag look silly in the very near future.

FB suggests that WhatsApp has 450 million active users and that 70% of those return to use the service every day. I think it is safe to assume that at least 80-90% of the users are on Android or iOS, in lock step with global smartphone market-share.  What if AAPL, who has sold more than 300 million iPhones (sold 51 million in Dec qtr), and 200 million iPads (they sold 26 mil in Dec quarter) were to license their own over-the-web messaging service that comes standard on their mobile operating system, and make it available to the 800 million active Android users in the Android App Store?? WhatsApp also claims to have a majority of their market share overseas, also an area where Android dominates smartphone market share relative to iOS.  The question is, if iMessage was available to Android users, could they quickly take tens if not hundreds of millions of WhatsApp and halt their parabolic growth?  Oh and not to mention I assume half of Blackberry’s installed base of 70 – 80 million users would also download iMessage.

Clearly we know what AAPL’s gameplan has been to this point, and that is to sell devices. With that as the focus they’ve felt no need to make their most popular apps available across devices. But we’ve seen what happens when they had the same gameplan a couple of decades ago. And I’m sure Tim Cook has read that Steve Jobs book. I would also add that tens if not hundreds of millions of WhatsApp and FB users already have iTunes accounts (there are more than 500 million people on the planet who have credit cards linked up with iTunes) and this could have broader implications for APPL as they move deeper into web services.

So maybe AAPL doesn’t have to go as far as license their operating system to gain market and mind-share in the social web.  Maybe they just need to offer popular apps like iMessage to other platforms.  WhatsApp charges a measly dollar for their widely popular service.  If AAPL were to make iMessage free on Android, it has the potential to be a trojan horse for potentially hundreds of millions of non iOS users.  If they were to do this, they could potentially put a serious dent into Facebook’s plans to own mobile messaging and thus weaken any other plans the company may have in the future, after paying $19 billion for a company that could be a flash in the pan.