Trending
To be fair, social commerce – the intersection of online retail and social media – is already emerging, but 2022 could be the year when this concept really generates more attention.
With that, there will inevitably be some interesting investment implications for advisors to ponder. Add to that, clients might be ahead of the curve here because they're likely already familiar with many of the growth stocks that have leverage to this investment thesis. If nothing else, plenty of clients are already devoted online shoppers, users of social media or both.
Good news for advisors: The social commerce investment thesis is easily explained because, as noted above, many clients are already engaging in it though they may not be intimately with the social commerce vernacular.
Imagine making a purchase while flipping through Facebook or looking at pictures on Instragram. It's already happening and that's social commerce.
Sizing Up Social Commerce Opportunity Set
The move to social commerce makes a lot of sense, particularly for social media companies. Facebook is a different animal because it's a sprawling enterprise with eyes on cloud computing and the metaverse, among other endeavors.
However, social commerce is important to other social media companies because the stark reality is user growth is slowing. It's not hard to figure out why, but Twitter, as one example, is experiencing sluggish use growth.
Another thing to consider about the relevancy social commerce is that it's an avenue to get back to what social media was supposed to be about in the first place: People connecting and interacting with each other in congenial fashion. By their own doing, many social media companies lost site of this objective and are alienating tens of millions potential users in the process. Fortunately, engaging in social commerce doesn't subject customers to much of the toxicity that's prevalent in social media today.
“Such an approach reduces frictions, allows users to digitally comment or consult with friends, and enables hyper-targeted advertising and custom shopping experiences,” says Global X analyst Pedro Palandrani. “Conversely, traditional e-commerce methods, like online stores, tend to be more brand or product-centric, with shoppers often navigating pages of dozens of products to find the goods they want.”
More good news for advisors: Data confirm the intensity of social commerce growth, making it an easier conversation starter with clients.
“Social commerce is one such growth opportunity for social media companies – and perhaps one of the largest. In the U.S., social commerce is projected to reach $80 billion by 2025, accounting for 5.9% of retail e-commerce sales, up from $36 billion and 4.4% in 2021,” adds Palandrani.
Social Commerce Is the Future
Discussing growth stocks isn't difficult with most clients and that certainly applies to those names in the e-commerce space. Advisors and some clients already know there's ample growth to be had in this industry.
What makes social commerce relevant for risk-tolerant clients with long time horizons is that it adds a “wave of the future” feel to a concept that doesn't lack for it and that could be fruitful over the long-term.
“Social commerce is transitioning social media from advertising products to becoming the store itself. Blend the social aspects of shopping with easy purchasing journeys right from one’s account, spending is likely to accelerate. Many consumers are on board with the idea: 30% of online shoppers say they are open to purchasing from a social network,” concludes Palandrani.