For years, I’ve been pounding the table about Facebook’s (NASDAQ:FB) huge opportunity to turn into a large online retail marketplace that matches its 2.6 billion monthly active users with merchants across the globe. Facebook’s enormous social commerce opportunity is one of the best reasons to buy and hold FB stock for the long term.
The only problem? Facebook’s disjointed attempts to tap into its huge social commerce opportunity to-date – such as Marketplace – haven’t worked. Sure, there have been mild successes. But they haven’t come to close to cracking the social commerce code.
That all changed on May 19, when Facebook announced Shops.
Shops – available through both Facebook Shops and Instagram Shops – is Facebook’s best effort yet to tap into the social commerce market.
By the looks of it, it’s a winning effort. Shops offers the seamless shopping experience that both sellers and buyers are looking for. It covers everything from discovery to check-out, and should be hugely popular among both small-to-medium sized merchants and Facebook users.
In other words, it’s the first significant step in Facebook creating a huge online retail marketplace. By the end of the decade, I think that this retail marketplace could generate $70 billion in revenue – about as much revenue as the digital ad business generates today.
What are the investment implications? Buy FB stock. Social commerce could push Facebook stock to nearly $1,000 by the end of the decade.
Shops is a Game-Changer
The bull thesis on Facebook and its new Shops initiative is pretty simple.
Facebook’s ecosystem of social media apps is the perfect place to conduct commerce. Facebook. Instagram. Messenger. WhatsApp. These are apps where we spend several hours every day, and browse through endless amounts of content. A lot of that content involves consumers discovering new products and services through an ad, promoted post, or a friend’s recommendation.
Nearly 80% of consumers already use Facebook to discover products. About 2 billion across the globe are finding new products and services with Facebook every month. That could make Facebook the biggest product discovery platform in the world, and discovery is the first step in the shopping process.
In other words, Facebook controls the top of the funnel. All the company needs to do to turn users into shoppers is create a robust shopping service which guides users from discovery to product selection to checkout.
Shops is exactly that. It is a fully integrated service where consumers can seamlessly transition from product discovery on Facebook and Instagram, which is already happening, to product selection. Shops will promote selection by allowing merchants to easily create mini-shops in-app with catalogs of products and services. To complete the purchase, Shops will enable users to checkout in Facebook or Instagram, if the merchant has enabled checkout services.
Shops is the quintessential solution Facebook has been seeking to crack the social commerce code and seamlessly turn robust discovery today into robust shopping tomorrow.
Over the next few years, Shops usage will grow, Facebook will turn into one of the world’s largest online retail marketplaces and FB stock will soar.
Online Retail as Big as Digital Ads
Facebook Shops could be the key to creating an online retail business for Facebook that, by 2030, will be as big as the digital ad business is today.
Global retail sales measured just north of $25 trillion in 2019. Of that, about 14.1% – or roughly $3.5 trillion – were e-commerce sales. Over the next decade, global retail sales will tick higher, powered by population growth, inflation, household income gains and urbanization. Meanwhile, e-commerce sales will increase as a percent of total retail sales, thanks to digitization tailwinds and rising global internet penetration rates.
My modeling suggests that global e-retail sales could measure about 35% of total retail sales by 2030, or almost $14 trillion. And Facebook will increasingly tap into this $14 trillion market over the next decade thanks to Shops.
The approximately 2 billion people who already use Facebook to discover products doesn’t include Instagram. There are only 4.5 billion internet users in the world. Thus, about 45% of the world’s internet population uses Facebook for product discovery.
The whole point of Shops is to convert that discovery into shopping. Of course, conversion won’t be 100%. That is, Facebook won’t turn 45% discovery market share, into 45% e-retail market share. But it’s fairly likely Facebook’s online retail marketplace controls 10% of the e-retail market by 2030.
That would imply $1.4 trillion in gross merchandise value. A 5% take rate means about $70 billion in revenues for Facebook. Meanwhile, Facebook’s digital ad revenues last year were just shy of $70 billion.
Facebook Stock to $1,000?
Powered by big growth in its social commerce and digital ad businesses, Facebook stock could hit $1,000 by the end of the decade.
My modeling suggests that if Facebook can create a $70 billion social commerce business by 2030 and sustain its leadership position in the secular growth digital ad market, this company could realistically hit revenues north of $300 billion by 2030, up from roughly $80 billion projected this year.
Making some conservative assumptions on margin expansion, I believe that $300-plus billion in revenue will flow into $50 in earnings per share.
Based on a 20-times forward earnings multiple – which is the medium-term average for technology stocks – that equates to a 2029 price target for FB stock of $1,000.
Bottom Line on FB Stock
Facebook has two huge growth opportunities over the next decade.
First, there’s the digital ad business, which should keep booming thanks to:
- Increasing digital ad spend.
- Continued user growth across Facebook’s ecosystem.
- Additional ad real estate on WhatsApp and Messenger.
Second, there’s the social commerce business, which is tiny today but – thanks to Shops – has a visible pathway toward becoming as big as the digital ad business by 2030.
If Facebook fully capitalizes on both of those growth opportunities, then FB stock could soar from $200 in 2020 to $1,000 by 2030.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long FB.