Facebook Inc (NASDAQ:FB)’s new gift service is good news to the social networking giant, but if you thought this is anything to scare current market leaders in e-commerce, then think again. According to a research report by Bank of America Corporation (NYSE:BAC)’s Merrill Lynch, eBay Inc. (NASDAQ:EBAY) and Amazon.com, Inc. (NASDAQ:AMZN), are unlikely to face any competitive threats from Facebook’s new gift service.
Facebook Inc (NASDAQ:FB)’s new service is expected to enhance its e-commerce service, an area that it has struggled to gain any traction with in the past. Interestingly, Facebook’s new gift service has already attracted the likes of Starbucks Corporation (NYSE:SBX), and Warby Parker among others.
The company joins a market segment already dominated by the likes of eBay Inc. (NASDAQ:EBAY), Amazon.com, Inc. (NASDAQ:AMZN), and China’s Alibaba.com Limited (HKG:1688), and is likely to face some stiff competition from them as it tries to convince customers to using its gift service. Merrill Lynch analysts are of the opinion that it will take some time for Facebook, to finally penetrate the market, which technically suspends any possible competitive threat it would have posed to current market leaders, to the long-term.
Impact on Facebook’s Revenue
The analysts have put a hypothetical rate of 12% for the commission charge on all gifts exchanged. Additionally, the analysts have an estimated 1% of Facebook users to be Gift users, which would translate to about 1.5 million gift users. A movement of 1 gift per gift user per year would result into about $153 million in GMV, which would translate to about $18 million in global gift revenue.
The silicon valley company will generate approximately $9 million from the U.S market, going by the same statistic, whereas the amount doubles, triples, and quadruples, and so on, if each Gift User moves 2, 3, 4, or 5 gifts respectively. The analysts have placed a tentative average selling price of about $50 per gift within the U.S market, while the international gift selling price is pegged at about $15 per gift.
Long-term Impact on Ebay and Amzon.com is a Possibility
This is entirely a new product by Mark Zuckerberg’s company, and customers will likely follow a below 45 degrees acceptance perception, as the service grows. Amazon.com and Ebay, are already established e-commerce brands, and they need no introduction to customers. On the other hand, Facebook might result into discounted pricing, if it wants to put that acceptance curve above the 45 degrees inclination with time.
Nonetheless, the long term threat is still imminent; we are facing a very likely prospect of a third ecosystem in the e-commerce industry. If this ever comes to be, and customers customers approve its new gift service; then, Ebay and Amazon.com should be ready for a stern challenge as facebook has the masses.
Additionally, note that if the social networking giant could raise the rate of gift users from its user base, from 1% to around 5%, then this would result into about $0.5 to $1 billion gift revenues per year, with every gift user assumed to be sending 5 gifts.
The new service by Facebook Inc (NASDAQ:FB), is the latest in its campaign toward monetization of its massive user base, following the recently introduced, Targeted Custom Ads.
Merrill Lynch Analysts are neutral on Facebook’s near term stock performance, and cite upcoming share lock-up releases as a major overhang, while mobile platform ad monetization still remains a challenge. However, they are of the opinion that, if Facebook can increase its annual revenue per user upwards of the current $5.00, then it could lead to much better results and outlook.
Yesterday, Facebook Inc (NASDAQ:FB), closed at $20.32, while today, it was trading at $20.56 premarket, up $0.24 per share or 1.18%. Merrill Lynch’s stock price objective is $23 per share, and is based on 35x of their 2013E EPS, or 1.2x growth, in-line with the high-growth Internet peer group.