Upon first glance, the partnership doesn’t appear to be that big of a deal for FB stock. Facebook has built a ticketing platform that allows users to search movie showtimes at different theaters. AMC has partnered with Facebook on this ticketing platform so that once users select a showing on the Facebook ticketing platform, they will be directed to AMC’s page to buy the actual movie tickets.
In other words, it is an ostensibly simple partnership which now allows users to buy movie tickets directly on Facebook.
But the long-running implications of this partnership are quite profound for FB stock. Indeed, I think this partnership is a glimpse of the future of commerce. In that future, e-commerce converges with social media, and Facebook transforms into a global commerce marketplace of unprecedented size.
In that future, FB stock is a big winner.
Here’s a deeper look.
Get Ready for the Era of Facebook Commerce
Social media is rapidly converging on e-commerce. In that world where social commerce is king, Facebook has the potential to be a global commerce leader.
The logic here is pretty simple. And the transition is rather inevitable.
Companies pour millions and billions of dollars into digital advertising on social media. Why? Because on social media platforms like Facebook, Instagram, Twitter (NYSE:TWTR), and Snap (NYSE:SNAP), consumers are both exposed to new products and reminded of old products. Thus, if a brand wants to grow mind-share, it needs to spend big on social media advertising.
But if a consumer wants to turn interest into action and go from seeing an ad to buying a product, the traditional process is somewhat clunky. You have to click the ad, which pops up another screen that takes a while to load. That other screen is usually the company’s website, and it is sort of a wildcard as to where on that website you land. Plus, when you are ready to check out, you have to enter your payment and delivery info, which takes a while.
In other words, there is a lot of friction in the process of turning social media ad interest into consumer action.
Facebook’s partnership with AMC removes a lot of that friction. In that sense, it is a glimpse of what will inevitably happen in e-commerce. Consumers will store their payment and delivery info on Facebook, and the platform will incorporate “Buy Now” features everywhere to eliminate pop-up frictions. Thus, if I come across an ad on Facebook that I like, I can simply click “Buy Now,” browse a bit, and check-out without having to re-enter any info. It is friction-less social e-commerce that benefits both the buyer (lower friction) and the seller (higher conversions).
Facebook will do the same on Instagram, WhatsApp, and Messenger. Across all of its platforms, Facebook has 6 billion users. Thus, as Facebook transitions into a social commerce player, those 6 billion users will become 6 billion shoppers. The implications of that are huge for FB stock.
What It Means for Facebook Stock
FB stock trades at under 30-times earnings next to 50% revenue growth. That disparity makes it clear that the platform’s 6 billion cross-platform users are being valued only as advertising eyeballs.
But, if those 6 billion users become 6 billion shoppers — in addition to 6 billion pairs of advertising eyeballs — each one of those users will become immensely more valuable.
Hypothetically speaking, it isn’t unreasonable to assume half of Facebook’s 6 billion cross-platform users end up being consistent shoppers on Facebook. Among those 3 billion shoppers, it also isn’t unreasonable to think they spend about $5 per month, or $60 per year, on transactions through Facebook. That is a gross merchandise value of $180 billion. A take rate of 5-10% would translate into additional Facebook revenues of $9-18 billion per year.
That isn’t small change.
Long-term, then, FB stock will be a big winner if the company successfully pivots into being a social commerce giant.
Bottom Line on FB Stock
In the long haul, FB stock is positioned to deliver huge gains to shareholders — thanks to huge growth drivers converging on a relatively discounted valuation.
In the near-term, it is prudent to note that FB stock is trading at all-time highs heading into a highly anticipated earnings report. Thus, expectations are big. I think the numbers will be very good, but I’m also exercising caution into that report.
As of this writing, Luke Lango was long FB, AMC, and SNAP.