Meta Platforms Expanding WhatsApp Ads: A Potential New Revenue Stream Amidst Competition

Meta Platforms (META) is expanding its advertising capabilities within the WhatsApp updates tab, a feature used by 1.5 billion people globally. The company plans to maintain user privacy by keeping personal messages, calls, and statuses end-to-end encrypted, while using limited information such as country, city, language, followed channels, and interaction with ads. Meta's focus on improving advertisers' return on ad spending has been a key catalyst for its success. The company's proprietary machine learning system Andromeda powers ad recommendations, and the launch of the new Generative Ads Recommendation model for ads ranking, used in Facebook Reels, has increased conversion rates by 5%. Additionally, Meta has seen a 30% increase in advertisers using AI creative tools. Meta's growing focus on social commerce through Facebook, Instagram, and WhatsApp is noteworthy. In the first quarter of 2025, WhatsApp Business Platform and Meta Verified subscriptions contributed to a 34% year-over-year growth in other revenues for the Family of Apps, reaching $510 million. According to Zacks Investment Research's model, Meta's 2025 revenues are expected to grow 11.8% year over year to $179.67 billion. However, Meta is facing stiff competition from Alphabet (GOOGL) and Amazon (AMZN), which are expected to absorb roughly 50% of the projected global ad spending by 2028. Alphabet's focus on leveraging AI to drive growth is a key catalyst, while Amazon benefits from strengthening its AWS services portfolio and expanding content portfolio, driving Prime growth. Despite these challenges, Meta Platforms shares have appreciated 19.9% year to date (YTD), underperforming the broader Zacks Computer & Technology sector's return of 1.1% and the Zacks Internet Software industry's rise of 10.6%. The stock is trading at a premium with a forward 12-month Price/Sales of 8.98X compared with the industry's 5.57X. The Zacks Consensus Estimate for second-quarter 2025 earnings is $5.75 per share, up 3% over the past 60 days, indicating 11.43% year-over-year growth. The consensus mark for 2025 earnings is $25.14 per share, up by 3.2% over the past 30 days, suggesting 5.36% year-over-year growth. Overall, Meta Platforms remains a company to watch in the tech sector, with its focus on improving ad targeting and social commerce opportunities. However, investors should keep in mind the competition from other tech giants and the company's current valuation metrics when making investment decisions.