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Daily Intelligence Briefing

Tuesday, February 9, 2021

Identifying Change-Driven Investment Themes – Five sections, explained here.

The Daily Intelligence Briefing is published by McAlinden Research Partners. The report is provided to Hedge Connection blog readers once per week for free. Below is just one of the five sections that delivers Change-Driven Investment Themes everyday.


I. Today’s Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

Social Commerce Growth Surges as Top Firms take Cues from Massive Chinese Market

Summary: Social commerce growth exploded in 2020 as consumers spent an average of 4 hours per day on their mobile devices. The increasing monetization of social media is now transforming the way consumers interact with advertising by integrating shoppable content directly into livestreams and helping their users build out digital storefronts. Many of the new features being implemented by the western social media giants follow in the footsteps of what has already worked in China, the world’s largest social commerce market – one that is currently 10x larger than than its US equivalent.

Though some antitrust worries loom for Facebook and Google, you wouldn’t know it from many analyst ratings.

Related ETF & Stocks: Global X Social Media ETF (SOCL), Facebook, Inc. (FB), Alphabet Inc. (GOOG), Snap Inc. (SNAP)

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Social commerce is on the rise, fueled by dramatic growth in screen time on mobile devices, as well as increasingly interactive advertisements and digital storefronts.

According to App Annie’s annual “State of Mobile” industry report, mobile app downloads grew by 7% year-over-year to a record 218 billion in 2020. That compliments Sensor Tower data showing annual consumer spending on mobile apps and games surpassed $100 billion globally. It was the first time consumers spent as much in a single year.

Illustrating the growing shift from traditional advertising to mobile-based social commerce, application usage in the US surged ahead of the time spent watching live TV in 2020. Currently, the average American watches 3.7 hours of live TV per day, but now spends four hours on their mobile device.

As TechCrunch highlighted, Android users alone spent 3.5 trillion minutes using apps on their devices throughout the year.

The Holiday season was a breakout one for mobile shopping, likely boosted by the pandemic’s drag on brick-and-mortar retail. Shopping via smartphone increased by 25% to $3.6 billion, comprising 40% of all online spending on Black Friday, according to research from Adobe Analytics. On Cyber Monday, consumers spent about $10.8 billion online, and mobile purchases comprised 37% of overall sales, according to another Adobe report.

The war for dominance in the social commerce marketplace right now is primarily being waged by Facebook and TikTok.

Facebook, the world’s biggest social media company, has been bolstered by a return in ad growth rates to pre-COVID levels and a holiday shopping boost from its new “social commerce” features.

In October, TikTok partnered with Shopify to allow its merchants to sell their products on TikTok by way of shoppable video ads, even if they didn’t have a strong presence on the platform yet. Shortly after, Facebook rolled out shopping tools in their own TikTok copycat service, Reels – hosted on Instagram.

While CNN reports that it took less than six months for Instagram’s clone of Snapchat’s “stories” feature to catch up to its rival’s audience size, eventually being credited with stunting Snapchat’s user growth back in 2017, Reels has not been able to dent TikTok’s user base in the same way. Though Facebook is yet to release any data on Reels, one scroll through Instagram’s Reels feed shows that it is largely a home for reposted TikToks, many of which bear the company’s watermark.

Snapchat has also launched Spotlight, their own copycat of TikTok. As of January 2021, Snap claims the service has 100 million users.

Google’s development of a TikTok competitor, currently known as YouTube Shorts, is also underway. For now, it’s beta testing is currently aimed solely at the Indian market, where TikTok is banned.

Though nobody has been able to compete with TikTok in the popular short-form video market, Facebook and others have managed to pull out ahead of the company on advertising and livestreaming.

Back in September 2020, MRP noted that Facebook had already begun mimicking highly successful social commerce livestream strategies that Chinese firms have pioneered. Their new Live Shopping feature, which is similar to Alibaba’s Taobao Live, let businesses go live on either platform and feature products from their Shops, which customers will be able to purchase directly from the video.

American social media platforms are likely to continue taking cues from Chinese companies like ByteDance (TikTok’s parent company) and Alibaba, since they’ve helped make China is the most advanced social commerce market in the world. eMarketer forecasts China’s 2021 social commerce sales will reach $363.26 billion, up 35.5% YoY and more than triple what they were in 2018. These sales will account for 13.1% of total ecommerce sales this year.

Though Douyin, ByteDance’s Chinese equivalent of TikTok, has shown progress in chasing down Alibaba’s social commerce presence, they’ve had issues monetizing that growth. Douyin tripled their ecommerce transactions last year to 500 billion yuan in gross merchandise value, but only about 20% of that came from the app’s own ecommerce platforms – the rest flowed to third parties.

Though US social commerce is expected to reach just $36.09 billion ― less than one-tenth the value of China’s – growth has been robust in recent years.

The impact of Facebook’s ventures in social commerce throughout the last year have already yielded obvious gains. In their most recent earnings report, revenue per user jumped to a record high of $10.64, up 19% YoY, after declining below $8.00 throughout the first three quarters of 2020.

Being forced to play catch-up, TikTok is planning on rolling out their own livestreamed shopping feature, which will be similar to traditional TV shopping channels like QVC and HSN ― but for mobile, according to the Financial Times. Users can purchase products with a few clicks after watching a quasi-infomercial. TikTok’s other new e-commerce features, highlighted by Business Insider, include a tool that allows companies to display catalogs and another feature that allows users with a big following to link to products and earn money off sales.

The most significant uncertainty now looming for the social media giants is rash of antitrust suits filed against Facebook and Google toward the end of 2020.

The Federal Trade Commission (FTC), in conjunction with attorneys general of 46 states (plus those from Guam and DC), sued Facebook in December, alleging that the company is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct ―including its 2012 acquisition of up-and-coming rival Instagram, its 2014 acquisition of the mobile messaging app WhatsApp, and the imposition of anticompetitive conditions on software developers. US District Judge James Boasberg in DC said that Facebook had until March 10 to respond to the two complaints.

Google faces a lawsuit from the Department of Justice (DOJ) ― along with eleven state attorneys general ― that alleges the company has entered into a series of exclusionary agreements that collectively lock up the primary avenues through which users access search engines, and thus the internet, by requiring that Google be set as the preset default general search engine on billions of mobile devices and computers worldwide and, in many cases, prohibiting preinstallation of a competitor.

Facebook and Google will be co-defendants in another suit from 10 state attorneys general accusing them of colluding in an illegal price-fixing deal.


While MRP will continue to monitor any significant developments, the evidence in these cases remains opaque and it will be some time before the true scope and merit of the allegations can be gauged. While the situation is not totally analogous, it is worth noting that TikTok faced an outright ban from the Trump administration in 2020, but managed to skirt it by securing support from multiple US federal judges.

What we can say for sure is that, if any major investors in Facebook are concerned about legal action, it has yet to show up in the company’s valuation. The stock has been mostly flat in 2020, but is up nearly 26% over this time last year. Bank of America just re-iterated its “buy” rating on the company, along with its $345 price target, representing a potential 26% increase over current share prices of around $273 per share.

Likewise, Mizuho Securities thinks Google parent, Alphabet, is headed toward $2,350 per share (currently trading at $2084) after raising its price target 12%. That came in the wake of the search-engine behemoth’s most-profitable quarter ever, closing out 2020 with a bang. Needham Research and AB Bernstein analysts are each targeting $2,500.

MRP begun tracking our LONG Social Commerce theme with the Global X Social Media ETF (SOCL) on May 26, 2020. Since then, SOCL has returned 91%, nearly tripling the S&P 500’s gain of just 31% over the same period.

Effective today, we are reiterating that theme. SOCL includes Facebook, Snapchat, Alphabet, and Chinese video sharing site, Bilibili, among its holdings.


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