Exporting to the West: The growing presence of Asia-Pacific ad spend worldwide

‌Meta has been one of the best performing names amongst major US stocks in the last 12 months, with its stock price on the way to trebling over the past year. Part of that has been due to the positive reaction that its so-called "Year of Efficiency", with job cuts and reduced spending had on investor sentiment. Part was due to a growing expectation that the US interest rate raising cycle would come to an end, which boosted sentiment to technology stocks. However, the single biggest driver has probably been the better-than-expected bounceback in Meta's advertising revenues, which has been much stronger than anticipated, and that is being driven by Asian—mainly—Chinese firms. This not only has implications over the short-term, but over the medium to longer-term.

‌The contribution of Asia-Pacific advertisers to Meta's revenues is becoming increasingly important. In the first nine months of the year, APAC customers grew their advertising revenues on Meta over 25%, far in excess of the just over 2% increase generated by customers based in North America. In Q3, the revenue growth from these same customers grew by 44%. That the spend is being 'exported' to North America and Western Europe can be seen by comparing this number versus the official revenues generated in the region itself (note that 99% of Meta's revenues come from advertising) which were 19%. The implication is clear: Advertisers in the region are aggressively advertising outside their home continents.

‌Where is this spend coming from? Some of it is from the Chinese Gaming space as Meta has sorted out the measurement and targeting issues associated with Apple's iOS changes, but most is being driven by Chinese e-commerce platforms such as Shein and Temu—who have expanded aggressively into Western markets as they seek new customers. The obvious question is: Will it continue to grow?

‌My feeling is it will. There are specific factors that point in this direction. Shein is reportedly looking to IPO on the New York Stock Exchange and in order to do so, it will want to prove that it is driving growth—preferably accelerated. Temu is also looking for slots at the 2024 Super Bowl. Meanwhile, its parent company PDD (formerly called PinDuoDuo) blew analyst expectations out of the water with 94% revenue growth year-on-year in Q3. More to the point, PDD made it clear they were only at the start of its expansion journey. Neither company is going anywhere anytime soon.

‌However, there is also the factor of their domestic markets to continue. It is fair to say Chinese consumer and economic performance has been more mixed than many anticipated at the start of the year. From the outside, there have been more questions raised over the future long-term growth prospects of China given its demographic and economic trend. It is therefore no surprise that these companies are looking more to western markets to drive rapid expansion. North America will be particularly attractive.

‌There are three other implications and/or questions from this. The first is that such Chinese clients will only become more important to Western-based global platforms—not just Meta—but maybe also more traditional platforms such as television. APAC customers made up 27% of Meta's revenues over the same period (nearly 20% more than Europe's) and this is likely to only rise.

‌The second is that as such spending increases, there may be more scrutiny of such advertisers, particularly in areas such as ESG. One (positive) for Western platforms is that, in North America and Europe, a long-standing tactic by activist groups has been to target advertisers to pull their ad spend from controversial platforms. That same sort of pressure is unlikely to be applied to companies operating in Asia and particularly from China.

‌The third is who else follows the lead of the Chinese pioneers. Asia has many outstanding firms and given the success already seen, it would make sense for consumer-facing companies in the region to look to Western markets to spur growth. Indian companies are a particularly interesting case here, although India still has plenty of domestic opportunities.

‌All in all, it will be a very interesting 2024.‌

As usual, this is not investment advice.