Meta's >$7bn China-US Cross-Border Ad Revenue Boost
Beginning in January 2024, most Madison and Wall research and related data published on this Substack will primarily be available to consulting or advisory clients, or otherwise as part of a paid corporate subscription. Please reach out to brian@madisonandwall.com if you would like to discuss these services or for more information about the new offering.
For many years I’ve pointed out that cross-border spending – primarily from Chinese manufacturers, game developers and retailers aided by local resellers – has a distorting effect on individual countries’ advertising growth rates, and especially impact Meta and Amazon growth trends as these two companies were early to capturing demand from this source. It’s one of the key reasons why we can no longer say with certainty how the overall economy and advertising correlate.
It had been a while since I dimensionalized the scale of this activity in the US at Meta, and so I thought it might be time to take a new look.
As I’ve noted since shortly after the company became a public one, every quarter as part of its earnings call presentation Meta publishes regional revenue information with its revenues apportioned by the location of users for the US and Canada, Europe, Asia and rest-of-world, and these are the geographic figure that most observers focus on. But usually within a day or two after the call, the company publishes its 10-Q or 10-K SEC filing and in that document discloses revenues apportioned by the billing address of its customers. After we back out the modest revenues associated with non-ad revenues (such as Oculus hardware), the gap between growth rates has proven to be occasionally significant – like double-digit significant. Over time, the gap added up, and by 2019 the difference in the US and Canada alone was around $2 billion.
Source: Company reports, Madison and Wall
But because this year the growth of revenue apportioned by user location vs. billing address is poised to outperform by 7%, at the company’s current scale (assuming Meta meets its guidance and regional shares hold steady) that produces a gap of $8.5 billion. Presuming that all of this revenue is from China (likely only a small share originates elsewhere, such as Vietnam), it’s almost certainly the case that there is more than $7 billion in revenue originating with Chinese billing addresses and running in the United States this year. As the figure was closer to $4 billion in 2022, we can say that this activity – on Meta alone – is responsible for $3 billion of growth, or around 1% of total industry expansion. Presuming Amazon (in particular) and others are also seeing cross-border advertising at a similar scale, we can see how important the export business is in context of the industry’s expected 6% underlying growth rate for 2023. Of course, the entire cross-border trade around the world will be much bigger, but likely equally meaningful to individual countries.
With this data in mind, we can see how important secular trends not directly related to domestic economic growth are critical drivers of overall advertising industry expansion.
