Why Facebook, Snap, Pinterest Benefit From Consumer Shift To E-Commerce

The shift in consumer spending to e-commerce — the No. 1 "shelter-in place hobby" — has proved positive for online ad platforms, according to a Morgan Stanley analyst. 

Spends Shift Toward E-Commerce: The pace of the shift in consumer spending away from travel, restaurants and experiences and into e-commerce has accelerated, analyst Brian Nowak said in a Thursday note.

The year-over-year growth in U.S. e-commerce spending has accelerated from 13% in February to 60% in April and 65% in May-June, the analyst said. 

E-commerce is likely to have captured 30% of the incremental $100 billion in monthly consumer dollars in the May-June period, up from 13% in April, he said. 

"While the US is slowly re-opening, we expect these buckets of available dollars (and structural online shopping behavior change) to remain e-commerce tailwinds into 2H:20." 

Nowak increased his e-commerce growth estimate for 2020 from 20% to 37%.

How Online Ad Platforms Benefit From The Trend: The analyst sees faster e-commerce growth as a meaningful tailwind to online ad platforms with large direct response/transaction-driven businesses, such as social shopping and e-commerce search.

Nowak sees Facebook, Inc. FB, Snap Inc SNAP and Pinterest Inc PINS, all of which have over 50% direct response/e-commerce, as the largest beneficiaries.

Alphabet Inc Class A GOOGL GOOG, with 30% e-commerce exposure, is also likely to be benefit, the analyst said. 

Morgan Stanley is cautious on Twitter Inc TWTR given its lower direct response exposure and still-high reliance on the return of sports/live events in the second half.

The Ratings: Facebook: Overweight/Price Target raised from $230 to $270

Snap: Equal-weight/Price Target nearly doubled from $13 to $25

Pinterest: Equal-weight/Price Target nudged up from $25 to $26

Alphabet: Overweight/Price Target hiked from $1,400 to $1,700

Twitter: Equal-weight/ Price Target increased from $24 to $32

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Photo courtesy of Pinterest.