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Facebook's $5.7 Billion Jio Investment Should Serve as a Valuable Insurance Policy

The social media giant is leveraging its balance sheet to help secure its current position in the world's fifth-biggest economy.

It might be best to look at Facebook’s  (FB) - Get Report $5.7 billion investment in India’s top mobile carrier as an insurance policy with some potential upside.

Confirming recent media reports, Facebook announced on Tuesday that it’s spending slightly over 1% of its market cap and 10% of its cash balance to take a 9.99% stake in Jio Platforms, the parent company of carrier Reliance Jio. The deal grants Jio, which has amassed 388 million customers with the help of aggressively-priced mobile data plans, a roughly $66 billion valuation.

For the moment, Facebook and Jio are a little vague about how they plan to work together. But it does look as if commerce and payments -- an area that Facebook has been paying more attention to lately -- will be a priority.

Facebook, whose core service hosts more than 65 million business pages and claims more than 7 million advertisers globally, asserts that it wants the partnership to create opportunities for India’s 60 million-plus small businesses. And both Facebook and Reliance have said that they plan to integrate WhatsApp’s services with the recently-launched JioMart marketplace, which sells groceries with the help of small businesses.

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WhatsApp is believed to have more than 400 million Indian users, and is widely used in the country both as an SMS replacement and as a means to connect with businesses. And in recent years, Facebook has both taken steps to strengthen WhatsApp’s utility as a platform for connecting businesses with consumers and to roll out a WhatsApp payments service (known as WhatsApp Pay) that relies on bank account transfers and was approved by Indian regulators in February.

Facebook has also seen decent traction for “click to message” news feed ads that let Facebook users contact an advertiser via WhatsApp or Messenger. And it’s five months removed from unveiling Facebook Pay, a payments service that will work across all of Facebook’s main platforms and support credit/debit cards and PayPal accounts.

There’s also of course Facebook’s Libra cryptocurrency initiative, which might now have an easier path towards regulatory approval following changes meant to address concerns that it could undermine the power of central banks.

But while Facebook has a lot of options for pursuing commerce and payments initiatives with Jio, it’s worth keeping in mind that both companies will be squaring off against some tough rivals.  (AMZN) - Get Report and Flipkart (now majority-owned by Walmart  (WMT) - Get Report) are by far the biggest players in India’s fast-growing e-commerce market, and firms such as Paytm and Flipkart-owned PhonePE are well-entrenched in the Indian payments market, as is Alphabet’s  (GOOGL) - Get Report Google Pay service.

However, even if platforms such as JioMart and WhatsApp Pay don’t take off, Facebook’s investment in Jio could prove to be worth its while, if it helps Facebook’s core service and WhatsApp maintain their current popularity within India over the long-term as it contends with rivals such as TikTok and Snapchat.

Should Jio simply do things such as pre-install Facebook’s apps on Android phones that it sells, occasionally promote some of Facebook’s services to consumers and businesses and use its political clout to improve Facebook’s occasionally-frosty relationship with Indian regulators, that could go a long ways towards making Mark Zuckerberg & Co. feel like they’re getting a decent return on their investment, regardless of how things like JioMart and WhatsApp Pay fare.

As a result, Facebook might first and foremost see its investment in Jio as a way to leverage its strong balance sheet to secure its current position in what’s now the world’s fifth-biggest economy and by far Facebook’s largest market in terms of users.

If, along the way, the investment also lets Facebook strengthen its position in India with the help of new services and initiatives, then all the better.

Facebook is a holding in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells FB? Learn more now.