Loup TV 006: Facebook Shop
Gene and Andrew discuss whether Facebook Shop justifies the $66B in market cap added to Facebook on the news. Loup TV is a series of short videos that dive deeper into the questions we get asked most.
“Making it easier to shop and sell on our apps”
Facebook announced Facebook Shop and expanded the availability of checkout on Instagram, making it easier to shop and sell directly on Facebook and Instagram. The company also announced that Facebook Shops (introduced in May) will soon be available to any eligible business within Facebook and Instagram apps. It will have storefronts, messaging capabilities, and tools to measure results. The company is also waiving selling fees for businesses through the end of the year.
$66B is overly optimistic
Facebook’s market cap increased $66B, or 8%, on the news. We see this as an overreaction to the Shops opportunity. Our 5 year best-case view is 1 million businesses each selling an average of $50,000 a year on Facebook, with Facebook taking a 15% take rate, which would generate $7.5B in revenue for the company. This implies Shops is valued at about 9x revenue in 2025, which we view as overly optimistic.
It’s about more than Shops, it’s a about a new business segment
The move in shares of FB was likely compounded by the fact that Facebook is now expanding its revenue opportunity beyond its advertising core, into direct commerce. Over the next couple of years, the company will be navigating a minefield of more limited access to its users’ data along with regulatory concerns. Investor excitement around entering a new business with a clear growth path, unencumbered by regulation, may account for a measurable portion of that $66B market cap move.