Is $5.7 Billion Jio Investment Good for Facebook Stock?

Investors dumped Facebook (NASDAQ:FB) stock in the past few months. The coronavirus pandemic has hurt the advertising industry. Businesses are slashing their marketing budgets as they grapple with soaring costs amid the pandemic. Since the demand for ride-hailing has diminished, companies like Uber Technologies (NYSE:UBER) have reined in costs by reducing marketing campaigns.

Facebook and Twitter (NYSE:TWTR) have reported lower demand for their advertising services during the pandemic. In fact, Twitter cut its financial outlook due to weakness in its advertising business. Facebook derives most of its revenue from advertising sales. In 2019, advertising contributed 98.5% of Facebook’s total revenue. Therefore, the advertising industry’s health influences investors’ sentiment on the stock.

Facebook stock fell by more than 13% in March. The spreading coronavirus caused businesses around the world to shut down or scale back their operations, which impacted their advertising budgets.

Facebook stock and $5.7 billion Jio investment

Facebook has invested $5.7 billion to purchase a stake of about 10% in Jio, which is a unit of India’s Reliance Industries conglomerate. The Jio platform includes the wireless phone business, digital services, and the online shopping platform JioMart.

Notably, the Jio deal is one of Facebook’s largest investments. The $19 billion purchase of WhatsApp in 2014 is still the company’s biggest deal. Although the recent virus-driven sell-off has slashed the stock’s gains, it has risen 150% since the WhatsApp acquisition.

Facebook intends to use its partnership with Jio to enable more Indian small businesses to sell online. Toward that end, the company will pair its WhatsApp platform with the Jio platform.

The Jio deal could provide a springboard for Facebook’s WhatsApp payment service in India and platform monetization. The deal could also help accelerate the uptake of Facebook’s Libra currency when it launches later this year. Facebook counts on businesses like WhatsApp and Calibra, which will provide Libra payment services, to generate non-advertising revenue. Therefore, the Jio investment could open a path for the company to diversify its revenue sources outside the advertising sector, which could bring more stability for Facebook stock.

At $170, Facebook stock has fallen 17% in 2020. The stock is trading at a 24% discount to its 52-week peak.