Meta's 1Q23 Growth Shows Positive Global Ad Trends, Illustrates Importance of Cross-Border Advertising
Meta reported its 1Q23 results on Thursday with a 7% constant currency growth rate for its global advertising business, although the US was relatively weaker. Equally notably, guidance for total company growth (and implicitly for advertising) for the second quarter is roughly similar, with an 8% constant currency growth rate at the mid-point of their range.
Although Meta did not have the difficult comparables that Google had in the year ago period (Meta’s constant currency growth rate in 1Q22 was 10%), considering the doom-and-gloom on advertising (and advertising growth at Meta in particular) I believe these numbers are reflective of the relatively positive trends that I expect the industry to see this quarter and this year. For reference, Alphabet’s Google posted approximately 3% organic / constant currency growth in advertising growth during the first quarter, and Microsoft’s main advertising businesses probably grew at a high single digit basis on a comparable basis. Those three companies account for approximately half of all global advertising.
Regarding Meta’s results, although many observers like to focus on user growth, pricing or impression growth, my past experience and research has shown that budgets from most advertisers get set independently of those factors. It’s the efforts to develop or expand products (including go-to-market strategies) for new segments of advertisers which matter most.
Consequently, trends that I pay attention to the most include factors such as the expansion of business messaging apps – a product which the company says is most popular in Latin America and SE Asia – which was at a $10 billion run rate of revenue (i.e. they generated $2.5 billion in 4Q22). According to the company, “over half” of click-to-message advertisers exclusively use that product. Commentary suggested that this segment of advertisers continued to grow well.
As notably, for the first time I am aware of, the company referred to trends related to marketers based in China when highlighting which categories of marketers contributed to the outperformance. This is a topic I have focused on for some time if only because it was seemingly ignored by the company in its public commentary previously.
On the call, the company’s CFO specifically pointed out “the online commerce vertical was the largest contributor to year-over-year growth, followed by healthcare and entertainment & media. Online commerce benefited from strong spend among advertisers in China reaching customers in other markets.”
While there were no specific disclosures regarding which specific advertisers were referred to, I am mindful of last year’s launch of Pinduoduo’s Temu, a marketplace akin to Wish.com. For reference, Wish was likely one of Facebook’s largest advertisers at its peak with more than $1 billion in annual spending on advertising.
To illustrate the scale of this sort of activity – advertisers from outside of one market advertising into another – consider that the US and Canada booked $11.4 billion in revenue from all sources (including local operations of global advertisers where billing addresses are in the US and Canada) in the US and Canada during the quarter, but revenue attributable to users in the US and Canada was $13.0 billion
Growth from all revenue sources (both advertising and non-advertising) based in the US and Canada was actually negative, down 3% in the quarter, while growth for revenues attributable to users was positive 3%. Excluding hardware sales and focusing only on advertising each of these numbers would have been slightly more favorable.
Identifying the right trend to focus on when assessing regional trends is subjective, but so long as cross-border advertising is increasingly important to the global advertising industry, both metrics are important to monitor.