Meta's 3Q23: 21% CC Ad Growth Led By Advantage+ and Chinese Advertisers
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On Wednesday, Meta reported 3Q23 advertising revenue growth of 21% in constant currency terms, much as expected, but nonetheless remarkable considering the scale of the company’s year-over-year expansion. In the third quarter alone the company added more than $6 billion in new quarterly ad revenue – or more than the annual revenue for any company below the industry’s top 10. The company will likely do it again in the fourth quarter given guidance implying similar growth in the current period.
A revenue run rate for Advantage+ of $10 billion was called out as a key factor. To the extent this represents approximately $2.5 billion in the recent quarter and presumably very little in the year-ago period, this new product implicitly accounted for almost half of the company’s growth in the quarter. Unlike other products such as Reels, I am inclined to believe that many of the revenues generated from Advantage+ are incremental. Anecdotally, it appears that Meta’s Advantage+ and Alphabet’s Performance Max are driving much of the growth in digital advertising at the present time as these essentially non-transparent performance-focused generative AI-based ad products are leading the way for platform-based buying on digital media. It’s important to note that these products are growing as rapidly as they are despite the reduction in availability of data due to changes in Apple’s operating system.
Driving spending, “online commerce” as a vertical of advertising – one which is actually highly likely to shift spending across suppliers depending on who produces performance, however defined – was described as the largest contributor to year-over-year growth, with gaming and packaged goods advertisers also characterized as leading the quarter’s results.
Chinese advertisers – which I presume include Pinduoduo’s Temu and Shein among others – were also called out multiple times as driving regional results, and were described as experiencing accelerated growth. China was also characterized as an “outsized contributor” to overall growth. As I’ve noted extensively in the past, over the past decade, Meta has been disproportionately focused on marketing to, facilitating buys from and then generating advertising revenues from manufacturers based in China who can inexpensively drop-ship products to other countries around the world.
Although Meta does not disclose total revenues from China, my guess has been that it represents a large share of the company’s total. It’s certainly under 10% of total revenue but very likely more than a few billion. I would estimate the country accounts for around $10 billion in annual revenue at the present time.
The impact on the business can be seen when we look at regional revenue growth for Meta outside of APAC based on the billing address of their customers separately from the location of their users. Based on disclosures that Meta makes, we can see that ad revenues in the US and Canada region are 19% higher when apportioned on the location of customers rather than on the billing address of customers, with a growth rate differential in the most recent quarter of nearly 10% (i.e. ad revenue from clients based in North America was only up by 8.4% while ad revenue apportioned to consumers in the region was up 17.2%). This trend is similarly observable in reverse in APAC, where revenues apportioned by users are 29.5% lower than the revenues apportioned by the billing addresses of customers.
Source: Madison and Wall, Company Reports
Although a generative AI-based ad product and Chinese advertisers have evidently been critical to growth, the company also characterizes other efforts to improve monetization including “improving Reels monetization, creating engaging on-platform ad experiences (such as click-to-message ads on WhatsApp), making it easier for advertisers to connect their marketing data (using the Conversions API or supporting uses of Google Cloud or AWS) and increasingly leveraging AI across our ad systems and products.”
One other notable point called out related to a comment CEO Mark Zuckerberg made around time spent on their platforms: according to Zuckerberg the company has seen a 7% gain in time spent on Facebook and a 6% gain in time spent on Instagram. To the extent this reflects an expansion in ad inventory, it may not cause actual increases in budgets, but presumably helps to ease pricing pressures that might otherwise occur.