Meta Platforms could see a slowdown in a big revenue driver later this year. Wall Street analysts looked at three ways the social media giant can offset such a scenario. The “revenue driver” in question is last year’s advertising blitz from large online Chinese retailers that made up about 10% of Meta’s overall revenue. As we reported in April , Temu and Shein were blanketing social media feeds to market their low-cost goods to American and European customers. That pace of spending, however, might not be as concentrated going forward. Temu is owned by Chinese tech giant PDD Holdings , which is listed on the Nasdaq. PDD, which operates discount e-commerce platform Pinduoduo in China, moved its headquarters to Ireland from Shanghai last year. Fast-fashion giant Shein was founded in China more than a decade ago but relocated to Singapore. Shein had been looking at an initial public offering in the U.S. but faced pushback from regulators and lawmakers. It has turned its effort to go public in London. Based on conversations with management, Bernstein analysts said in a note Wednesday that Temu has pulled back on U.S. ad spending over the past few months, and it’s “diversifying into other geographies.” Evidence of slower or moderating ad spending from big retailers with ties to the world’s second-largest economy could force Meta to lean into some of its other strengths. In a note this week, Mizuho said Meta would be able to manage such a “Chinese advertising decline.” Analysts at the firm conducted a stress test — benchmarking a worst-case scenario for Meta’s Chinese ad revenue in the second half of 2024. They found that even by taking it to zero, the company would be able to “more than offset” that possible headwind to revenue growth through technology, partnerships, and events. The firm reiterated its $575 price target on Meta shares and top-pick designation. Mizuho analysts said Meta can leverage volume drivers such as increasing the ad load on Reels using artificial intelligence. This strategy combined with the launch of Meta’s new ranking algorithm, called Meta Lattice, can help increase engagement through optimal video placement. Another incentive to improve Meta’s ad monetization is analysts’ expectations that Facebook Shops’ partnership with Amazon , which allows customers to link their Facebook and Instagram accounts to their Amazon accounts, “could drive more retail media spending on the platform.” Mizuho also believes special events like the U.S. presidential election and the Olympics should help support ad spending in the back half of the year. In our commentary earlier this year, we pointed out concerns from Esty CEO Josh Silverman that summed up the downside to the broader industry of continued Chinese retailers’ ad spending at 2023 levels. “I think those two players are almost single-handedly having an impact on the cost of advertising, particularly in some paid channels in Google and in Meta,” he said on Etsy’s November earnings call, referring to Shein and Temu. That would seem to be a positive for Meta, but the risk is that if the ads got more expensive and smaller businesses didn’t see a commensurate increase in return on investment, perhaps they would cutback their spending or look elsewhere to place ads. While the Club isn’t writing that prospect off entirely, we’re not expecting to see advertisers revolt or anything close to it, given the scale Meta offers and the company’s continued embrace of artificial intelligence to improve ad targeting and return on investment. Meta is where the eyeballs are. (Jim Cramer’s Charitable Trust is long META, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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Meta Platforms could see a slowdown in a big revenue driver later this year. Wall Street analysts looked at three ways the social media giant can offset such a scenario.
