Over the past several weeks, Facebook (NASDAQ:FB) has turned its nascent, fledgling commerce efforts, into a full-blown commerce pivot centered around the company launching its very own digital currency. The long-term goal? That digital currency, dubbed Libra, enables and empowers Facebook’s 2 billion-plus users to more actively engage in commerce activities on the platform, and in so so doing, it creates a foundation for Facebook — traditionally thought of as the world’s largest social media company — to become the world’s largest commerce platform, too.
Investors celebrated the pivot because it: 1) dramatically expands the company’s addressable market, and 2) significantly lengthens the company’s big growth runway. FB stock consequently rallied from $160 to $190 in just a few weeks on this commerce catalyst.
But, Facebook isn’t the only social media platform that can jump into commerce. Over the past several years, the lines between the digital ad and commerce business models have become increasingly blurred. Amazon (NASDAQ:AMZN), the world’s largest e-commerce business, has a burgeoning digital ad business. Facebook, the world’s largest social media platform, will soon be a very important e-commerce player.
These convergences are happening because all that matters in either model is engagement. If you have a social media platform with a highly engaged user base, you can easily throw commerce opportunities onto that platform, and turn eyeballs into shoppers. By the same token, if you have an e-commerce business with a highly engaged shopper base, you can easily throw ads on that platform, and turn those shoppers into eyeballs.
Because of this, I don’t think Amazon and Facebook will be the only two companies that blend e-commerce and advertising. With that in mind, let’s take a look at six digital ad stocks that could follow Facebook into commerce.
At the top of this list of digital ad stocks with potential commerce upside is arguably the most “shoppable” social media platform in the world, Pinterest (NYSE:PINS).
Pinterest is all about visual discovery and inspiration. Consumers go there to get inspiration for a new outfit, a home remodel, or any other project/venture where inspiration can be visually derived. Because of this, consumers are going to Pinterest with something in mind, and that “something in mind” usually leads to some sort of transaction at the end of the process. Presently, that transaction does not happen on the Pinterest platform.
But, how easy would it be to migrate that transaction to the Pinterest platform? Very easy. Consumers go to Pinterest. See a shirt they like. Click on it. Get a price quote. Buy the shirt. Pinterest takes home a high-margin commission fee. Repeat this process at scale with hundreds of millions of users. That’s a lot of high-margin commission fees.
As such, it’s reasonable to call Pinterest’s commerce opportunity very large.
Next up, we have a social media platform that is the center of digital conversation, and which can easily leverage that positioning to be an important e-commerce platform, too.
Twitter (NYSE:TWTR) is the heartbeat of social dialogue on the internet. If consumers have an opinion on that new show, the recent ball game, or a new product, they often take to Twitter to publicly voice that opinion instantaneously and at scale. As such, Twitter is presently a collection of consumer opinions on various experiences.
Layering commerce on top of that existing structure would be very easy to do. Imagine this. You go to Twitter to read recent sports headlines. You see something about your local team making a trade for some big player. You’re scrolling through the feed of tweet responses to that trade. As opposed to Twitter feeding you an ad every few posts, they mix in a few posts where you can directly buy tickets to the next game through some ticketing service, but on the Twitter platform. Maybe it strikes your interest. Maybe you buy the tickets. Twitter takes home a high-margin commission fee.
Much like Pinterest, if you repeat this process at scale with hundreds of millions of users, those fees add up. All in all, then, Twitter’s present status as the social dialogue platform of the internet gives it a unique opportunity to turn that dialogue into commerce action, all on its own platform.
Digital Ad Stocks With Commerce Upside Potential: Snap (SNAP)
On the more speculative side of digital ad stocks with commerce upside potential, we have Snap (NYSE:SNAP).
Much like Instagram and Pinterest, Snap is a visual-first platform where a lot of consumers go to consume photos and videos from friends and publishers. As such, it’s easy to see how commerce can be put into the ecosystem, and turn eyeballs into shoppers.
But, the unique upside here is from the fact that Snap dominates the youth demographic, which is more comfortable with the idea of mobile shopping and social commerce. It’s very reasonable to believe that young consumers will be the first ones to adopt social commerce. Snap has all those young consumers. Putting two and two together, it’s also very reasonable to believe that Snap could become an early leader in social commerce.
As such, one of Snap’s presumed weaknesses to-date — its niche reach and narrow audience — could actually be a tailwind for this company as it pivots into commerce.
Google Search is the backbone of the internet. They control the top of the discovery funnel when it comes to consumers learning about any service or product. Because they do, they can easily keep consumers in that discovery funnel by building out services that help consumers lower in the funnel. That funnel ends with a consumer transaction. Thus, it’s very reasonable to see Google Search flowing into Google Shopping, and Alphabet becoming an e-commerce giant.
That’s only one leg of Alphabet’s commerce potential. Alphabet also owns YouTube, which is where consumers watch a bunch of online videos, a bulk of which are product reviews and promotions. Alphabet could build in “Buy Now” functionality into those videos, so that consumers can go from watching a product review on YouTube, to buying the product, all on the YouTube platform.
Net net, Alphabet has a tremendous opportunity in front of it to become a commerce giant.
One digital ad stock that should have a fairly easy time building out a tangential commerce business is Yelp (NASDAQ:YELP).
The restaurant and services review aggregator is currently the go-to place for consumers to quickly judge the quality of a restaurant or service. If a consumer is doing that, it’s because they are interested in going to that restaurant or buying that service. Thus, much like Google Search, Yelp controls the top part of the discovery funnel in the restaurants and services world.
Because of that, they can easily build out the bottom end of the funnel, too, and control the whole process. To be sure, there aren’t any online transactions when you go to a restaurant. But, in the era of food delivery, there are multiple online transactions. As such, Yelp’s pathway into the commerce world will be through online food ordering and delivery. That industry already has giants, so Yelp’s move into this space should be through a revenue sharing partnership with a food delivery giant like GrubHub (NYSE:GRUB).
If Yelp successfully pulls this off, it could result in enormous addressable market expansion for the company.
Last, but not least, on this list of digital ad stocks with commerce upside potential is over-the-top content aggregator, Roku (NASDAQ:ROKU).
Everyone is all excited about Roku’s advertising opportunity. They should be. Consumption is rapidly shifting from the linear to internet TV channel, and as it does, ad dollars are chasing that consumption. Over the next several years, we will see a huge migration of TV ad dollars from the linear to internet channel, and a large portion of those dollars will wind up on the Roku platform.
But, there’s another big opportunity here in commerce. Not every video or show can be streamed through a subscription streaming service. Indeed, there are a lot of movies and shows out there that need to be purchased a la carte. If Roku can successfully become the centralized hub of internet TV service access, then it will naturally also become the centralized hub for ordering movies and shows a la carte. Those transaction revenues will add up over millions of accounts, and ultimately become a sizable business for Roku.
Overall, Roku is oozing with growth potential across many different growth verticals, and that ultimately makes ROKU stock a long-term winner.
As of this writing, Luke Lango was long FB, PINS, TWTR, GOOG and ROKU.