On February 1st, like many Facebook and Instagram users, marketing veteran Victor Lee found himself bombarded with ads from cross-border e-commerce platform Temu whenever he opened Meta's app.
Recently, he came across a discounted golf bag on his Instagram feed. As a novice collector of golf gear, Lee was intrigued and clicked on the ad, only to be redirected to Temu's storefront.
"They knew I was a golf enthusiast," said Lee, a former senior executive at toy giant Hasbro who now serves as the president of digital advertising firm Advantage Unified Commerce. "They looked at my Instagram, saw I followed a lot of golfers and golf shoes, and so on. You don't need too much tracking to figure out that someone likes golf."
Ultimately, Lee didn't make a purchase because it wasn't what he was looking for, but similar experiences are becoming more common among Facebook user base. Temu and competitor Shein are aggressively advertising on Facebook and Instagram, aiming to establish their brands and snatch consumers away from giants like Amazon and Alibaba's AliExpress. Temu is owned by Pinduoduo Holdings, relocating its main offices to Ireland last year, while Shein, founded in China, relocated its headquarters to Singapore in 2022.
Lee, who frequently analyzes the digital advertising industry, notes that using Facebook for paid downloads is a familiar marketing tactic. Mobile gaming companies often spend big to drive downloads, while online retailers like Wish and popular short-video app TikTok sometimes inundate users with promotional content.
"Once they get the download, they're good," said Lee. "They're not so much reliant on downloads as they are on upselling to users who install the app. It's not a new strategy. It's just the scale and the spend is so high that you're starting to notice."
The biggest difference now is that Temu and Shein's spending is having a significant impact on Meta's financials, potentially affecting the social media company's growth rates. This Thursday, Meta is set to release its fourth-quarter 2023 earnings report, with analysts and investors eager to assess how much these Chinese cross-border e-commerce platforms have contributed to Meta's revenue and the sustainability of that impact.
Analysts surveyed expect Meta's fourth-quarter revenue to grow by 22% to $39.2 billion.
A Meta spokesperson declined to comment.
Rise of Chinese Retailers
Temu, founded in 2022, and Shein, established in 2012, only began heavily advertising on social media platforms in recent years.
Meta's Chief Financial Officer Susan Li stated during the third-quarter earnings call held in October last year that the company "benefited from increased spending by Chinese advertisers in other markets," echoing comments she made in April last year. While Meta didn't mention Temu and Shein by name, given the recent explosive growth of these two companies, analysts widely speculate that they have contributed the most to Meta's performance improvement.
JPMorgan analysts estimate that Temu and Shein spent around $600 million and $200 million respectively on Facebook and Instagram ads in the third quarter. According to JPMorgan, this implies they accounted for roughly 3% of Meta's total revenue growth during the same period.
Data from relevant studies show that Temu had over 73.87 million downloads in 2023, a growth of over 500% from the previous year. During the same period, Shein's downloads increased by 52% to 36.93 million.
As Meta's stock continues to soar, hitting new highs last week and again this week, with a sustained upward trajectory. Meta's stock almost doubled in 2023 and has risen by 12% so far this year.
In 2022, prior to this surge, Meta suffered nearly two-thirds of its market value loss. The company faced successive blows from skyrocketing inflation, rising interest rates, and a general downturn in tech stocks, compounded by Apple's adjustment of iOS privacy policies at the end of 2021, making it harder for brands to target users accurately.
While Meta bulls acknowledge the benefits brought by increased spending from Chinese cross-border e-commerce, they argue that the company isn't solely reliant on this.
Chris Mack, portfolio manager at fund firm Harding Loevner, says that the rise of Temu and Shein demonstrates the "power of Facebook as a platform for dissemination." However, he emphasizes that Meta's measures, including laying off 20,000 employees last year, significant cost reductions, investments in AI, and more standardized operations, are driving the stock higher. Additionally, Meta has had two years to adapt to Apple's privacy policy changes and is developing new advertising technologies with the help of AI.
According to relevant data, Mack's firm holds over $500 million worth of Meta stock. "Chinese cross-border e-commerce is just the cherry on top of everything they're doing," he said. "Whatever happens, the overall business is effective."
Despite this, every growth point is crucial for Meta, which experienced three consecutive quarters of revenue decline in 2022 and is projected to grow at rates far below historical standards in 2024.
The spending spree from Temu and Shein hadn't fully kicked in when Meta released its 2022 earnings report. At the time, Meta noted that it had "generated significant revenue from a small number of Chinese advertisers."
A spokesperson for Shein stated in an email that ad spending hasn't stopped, and the company "continues to engage in various marketing activities globally... such as in-app ads, email ads, and outdoor ads, etc." Temu's representative hasn't responded to the request for comment.
Meta isn't the only U.S. internet company affected by the rapid growth of Temu and Shein.
Josh Silverman, CEO of e-commerce platform Etsy, told analysts during the third-quarter earnings call, "There's no doubt that Temu and Shein are having an impact on the market." "You can't get that big that fast without taking market share from a lot of people. I think we and most of our peers in e-commerce have been affected."
Silverman added that Etsy has had to pay higher fees for digital advertising because "these two companies have almost single-handedly impacted ad costs, particularly on some of the paid channels of Google and Meta."
Deep Pockets
Additionally, U.S. e-commerce giant Amazon has been enticing Chinese companies to use its own e-commerce platform to fend off competition from Temu and Shein. Juozas Kaziukenas, CEO of e-commerce intelligence firm Marketplace Pulse, said Chinese sellers purchase bundled advertising services, which help support Amazon's burgeoning ad business.
"It's really misunderstood and underestimated how much the U.S. advertising industry directly relies on China," he said.
Rishi Shiva, co-founder of growth marketing company Pinebone, said Temu and Shein are also willing to advertise in ways that other brands are hesitant to adopt. Shiva said the changes in iOS privacy policies have increased the cost of running effective marketing campaigns, leading many companies to reduce their ad spending on Facebook in recent years.
"In the era when mobile e-commerce Wish was thriving, anyone with an app was spending money on Facebook," Shiva said. "Any company launching an app wanted to get as many users as possible on Facebook."
Now that Temu and Shein have deep pockets, their wallets are wide open. Analysts estimate that Shein's annual sales exceed $30 billion, while Temu's revenue in 2023 may exceed $16 billion. According to fund company Maikai, there's no platform better suited for them to advertise on than Facebook.
"Whether it's TikTok, mobile games, or e-commerce ads, Facebook is the channel that allows you to reach the widest audience," he said.
