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Facebook Stock Soared to a Record High On Its Further Push Into E-Commerce -- But Here's Who Really Wins

By Danny Vena - May 20, 2020 at 4:35PM

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On the surface, the social media giant has the most to gain from the launch of Shops, but appearances can be deceiving.

On Tuesday, Facebook (META -3.84%) made its biggest push yet into the realm of e-commerce with the debut of Shops, an initiative to help small businesses set up an online store. The social media giant is rolling out features that will help small business owners set up a single digital storefront that will be available to users on both its Facebook and Instagram platforms. Facebook says that setting up a Shop will be free and easy, allowing merchants to quickly make the jump to e-commerce. 

Facebook got a huge boost from the news, gaining more than 6% on Wednesday, pushing the stock into uncharted territory, as investors sensed the massive opportunity provided by e-commerce. At first glance, it seems that Facebook would have the most to gain from the move, but another company stands to benefit even more: Shopify (SHOP -7.22%).

Three smartphones showing various views of Facebook Shops on Instagram.

Image source: Facebook.

A gateway to e-commerce

Businesses will be able to choose the products they want to feature from their catalog, and customize the look and feel of their shop, with a variety of cover art and accent colors that will better allow merchants to showcase their brand. U.S. businesses will also have the option of enabling the checkout feature, which will allow customers to place an order and complete the transaction without ever leaving the app.

Facebook will charge a small fee on each purchase, though the real money will come from the potential for additional advertising -- which provides the lion's share of Facebook's fortunes. Merchants will "be able to connect with customers through WhatsApp, Messenger, or Instagram Direct to answer questions, offer support, and more."

There's little doubt that a further push into e-commerce by Facebook is a logical next step. The company has a captive audience of 1.73 billion daily active users (DAUs) and 2.6 billion monthly active users (MAUs), so increasing its exposure to online buying and selling makes a great deal of sense. It's important to note that Facebook had already established a beachhead in e-commerce, allowing users to buy and sell items on the Marketplace corner of its platform, with users also following brands and influencers on Instagram.

The devil's in the details

One of the important details that appears to have been lost in the shuffle is that Facebook, which was already partnered with Shopify, will be waiting in the wings to give these entrepreneurs the tools they need to help start or run their businesses and move them online. Shopify is one of several back-end technology partners, a list that also includes BigCommerce, WooCommerce, ChannelAdvisor, CedCommerce, Cafe24, Tienda Nube, and Feedonomics.

The e-commerce provider released its own missive about the deal on Tuesday, which helped highlight the opportunities the partnership brings. 

"Shopify powers more than one million businesses that are transforming the direct-to-consumer landscape and changing the way we shop. With Facebook Shops, we're bringing the tech industry together to help entrepreneurs succeed at a critical time," said Tobi Lütke, CEO of Shopify. "By pairing Shopify's platform and commerce capabilities with Facebook's reach and scale, we are reducing the barriers to entrepreneurship and advancing the future of commerce."

The company also revealed that the Checkout feature will be powered by Shopify, and its existing merchants can automatically connect their businesses to Facebook Shops, potentially increasing their own sales.

The Shopify app shown on a laptop, smartphone, and tablet, which are all sitting on a wooden desk.

Image source: Shopify.

Why this is a big deal for Shopify

Shopify is already providing the tools to support the next generation of e-commerce entrepreneurs. By partnering with Facebook, the company expands its business, introducing a new wave of merchants to all that Shopify has to offer. Those that achieve a degree of success on Facebook will likely expand beyond the confines of this e-commerce gateway for beginners and graduate to the more robust set of tools and services Shopify has to offer.

Facebook has a lot to gain from the expansion of its e-commerce ties -- but the opportunity for Shopify could be even bigger.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Facebook and Shopify. The Motley Fool owns shares of and recommends Facebook and Shopify. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$167.96 (-3.84%) $-6.70
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$34.20 (-7.22%) $-2.66

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