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Facebook Expanding Ecommerce Efforts

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Facebook, Inc. (FB) is constantly looking for ways to expand into new business verticals. This is evident from the company’s investments in virtual reality and artificial intelligence. Similarly, Facebook is trying to tap the lucrative opportunity available in the ecommerce industry, which is expected to grow exponentially in the next decade.

On June 22, the company announced the launch of Shops on WhatsApp and Facebook Marketplace. Previously, the feature was available only on Instagram and the main Facebook interface. This timely decision is likely to help the company penetrate the online shopping industry in the next few years, paving the way for strong revenue growth. (See Facebook stock charts on TipRanks)

Shops Will Open Many New Doors

Facebook is the world’s leading social media platform, with over 2.8 billion monthly active users. The company also owns Instagram, which attracts over a billion users every month, and WhatsApp, the world’s most popular messaging platform, with over 2 billion active users.

The company is no longer a social media platform operator that tries to connect people. Today, Facebook is touching every aspect of human lives, and the company’s goal is to become a utility that a consumer cannot live without. The rollout of Shops on Facebook Marketplace and WhatsApp is a decision aimed at achieving this objective.

The pandemic accelerated the growth of online shopping, as mobility restrictions forced consumers in every corner of the world to shop for their desired products and services online. Facebook Shops was launched in May 2020, with the aim of helping small businesses reach a bigger audience on Facebook and Instagram.

Today, there are more than 1.2 million active Shops on the platform, with 300 million monthly Shops visitors. With this success, Facebook is now allowing business owners to bring their products to WhatsApp, as well as to Facebook Marketplace, which has a monthly visitor count of over 1 billion.

Facebook also announced a new feature that enables businesses to target potential customers using personalized advertisements, based on the shopping preferences of users. This is only possible because of the substantial amount of data collected by Facebook over the last decade; it would take multiple decades for a competitor to replicate this innovative feature. Facebook’s ad revenue is likely to receive a boost once businesses start using personalized ad spaces.

In a bid to offer a high-tech shopping experience for users, Facebook is investing in augmented reality and artificial intelligence as well, and shoppers will soon be able to try out new sunglasses and clothing, using AR solutions that will be introduced by the company.

The Outlook for the Social Commerce Industry

According to eMarketer, U.S. social commerce sales will rise by 35% to $36.09 billion in 2021, accounting for 4.3% of total ecommerce sales. Both businesses and consumers have recognized the ease of using social media platforms to buy and sell products, which is the driving force behind the growth of this industry.

Embracing this macroeconomic trend, many social media companies have already introduced various related features, including product listing solutions and payment solutions. Those make the outlook promising for this fast-growing business segment.

Wall Street’s Take

Wall Street analysts have an average Facebook price target of $390.47, which implies upside of 11.4% from the current market price. If Facebook successfully executes its ecommerce push, the company is likely to report better-than-expected earnings in the next few quarters, and this could lead analysts to revise their price targets upwards.

Takeaway

Facebook is expanding its horizons to penetrate the fast-growing social commerce business segment, and the company is planning to introduce innovative features such as AR experiences to capture the market share of this industry. With over 5 billion monthly active users across platforms, the company is well-positioned to become the leading player in the social commerce industry.

Once Facebook establishes itself as the market leader, the company will have the option of adding new revenue streams to the company. It will be able to promote the use of Facebook Pay, and charge higher fees from businesses that want to advertise on the platform. Launching Shops on Facebook Marketplace and WhatsApp is the starting point of a journey that could see Facebook diversifying into new business verticals.

Disclosure: Dilantha De Silva owned Facebook shares at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.