What happened?

In the recent month, Facebook had to deal with a lot of problems including the allegations that it doesn’t provide user privacy and can’t timely monitor content for abuse and violence. At the same time, the stock got a 3.3% boost on Tuesday on the news that the social media company has improved its e-commerce capabilities on Instagram. Will the uptrend for Facebook resume after a period of consolidation?

Why is it important?

In general

The fact that e-commerce keeps rapidly developing is no secret. For example, Nike expects that its digital division will make up 30% of its entire business by 2023. Facebook founds itself in a good position to act as an online mall because about 35% of people in the world use Instagram, WhatsApp, and Messenger every month.

For investors

Facebook gave Instagram users the ability to shop from 23 top US brands right within the app. This feature is called “Checkout on Instagram” and it will make purchasing more convenient for customers. Among the participating brands, there are Adidas, Burberry, Dior, H&M, Michael Kors, Nike, and other prominent names.

For now, Facebook gets 98% of its revenue from advertising. It won’t hurt the company to diversify. Instagram has all chances to become an efficient spot for e-commerce. The setup with the top brands will run as an experiment. If it turns out to be efficient, more companies will be eager to join.

According to analysts at Deutsche Bank, the move can increase Facebook’s revenue by $10 billion in 2021. The prospect that the social network goes deeper into e-commerce and fulfills its plans of providing private encrypted messaging, payments, and other services, looks exciting and means that the company can substantially solidity its position. This offers the potential for long-term investments in Facebook.

For traders

Facebook stock has been trading sideways within a ‘megaphone’ pattern since the end of January. The price has approached the upper border of the pattern. The 50-day MA went above the 200-day one forming a  “golden cross”. The stock has to break above the resistance at $177.00, to open the way up to $182.00 and $190.00. Support is at $171.00 and $164.00.

The daily chart of Facebook Inc.

Stocks can be traded as CFDs at eToro.