P&G Exploring Facebook Commerce, Stock Upside Limited

Procter & Gamble (NYSE:PG) recently added “Shop Now” buttons to the Facebook fan pages for its several brands such as Gillette, Olay and Tide. This is not the first time the consumer goods giant has taken a plunge into Facebook commerce. P&G, which competes with Unilever (NYSE:UL), Colgate-Palmolive (NYSE:CL) and Kimberly-Clark (NYSE:KMB), had to earlier scrap its partnership with Amazon for the fulfillment of  orders due to poor user experience resulting from technical issues.

While P&G currently fulfills the items purchased on Facebook through its own e-store (See P&G’s E-Commerce Play Should Help Operating Margins), it has plans to expand its retailer network for servicing orders to include the likes of Wal-Mart (NYSE:WMT) and even Amazon (NASDAQ:AMZN) again. We value P&G’s stock with a $68.40 Trefis price estimate, at about 5% premium to its current market price. Below we explore the implications behind P&G’s move to expand Facebook commerce and the impact on its stock.

Word-of-Mouth Publicity Over Internet

With over half a billion users, Facebook is undoubtedly the most popular social networking platform. Users become ‘fans’ of the products they like, and this can influence their friends’ opinions and subsequently their future purchases. Facebook facilitates word-of-mouth publicity, a more credible form of advertising with no additional expenses incurred by the brand.

Benefiting from Retail Partnerships

Given the size of its audience and growing online retail business, Facebook has the potential to draw a significant share of volumes from brink-and-mortar retail outlets. P&G has always maintained friendly ties with its distributors and retail partners, and its partners now have the opportunity to  service purchase orders via P&G’s Facebook commerce.

Better Allocation of Advertising Budget

Facebook helps target the most appropriate audience for each of P&G’s products. Hence selling over Facebook provides a more efficient use of the advertising budget. Of late, P&G is trying to expand its focus on the digital channel for reaching out to its consumers. (See P&G CEO Ad Spend Moving Online to Reach Emerging Markets)

Limited Upside to P&G’s stock

While this may seem counter-intuitive, we believe P&G’s Facebook presence does NOT provide a significant upside to P&G’s stock. Firstly, being present on Facebook is more of a necessity for P&G since all other leading brands have similar pages dedicated to them. Secondly, Facebook only moves volumes between trade channels and does not drive volumes. Users are unlikely to consume more laundry detergent just because they can be bought online. They can however be expected to substitute the purchase from the neighborhood store to the convenience of online shopping.

View our detailed analysis of Procter & Gamble.