Chinese online retailers Temu and Shein are on$Meta Platforms (META.US)$It advertises heavily on its Facebook and Instagram in an attempt to build a brand and start$Amazon (AMZN.US)$und$Alibaba (BABA.US)$AliExpress is snatching consumers. According to information, Temu is$PDD Holdings (PDD.US)$Owned, the company moved its main office to Ireland last year, while Shein was founded in China and moved its headquarters to Singapore in 2022.

Marketing industry veteran Victor Lee said that different types of companies — including game companies, online retailers, and social media apps — all use Facebook as a platform to promote their products or services and increase the number of downloads of their apps by advertising on Facebook. This strategy shows that Facebook, as an advertising platform, can help these companies achieve their marketing goals, particularly in terms of increasing user downloads and engagement.

Lee said, “For many companies, the main purpose of advertising is to get users to download their apps. Once users have downloaded the app, the company will switch to a different strategy, which is to encourage these existing users to spend more or participate through various methods (such as providing offers, launching new features, etc.).” Lee pointed out that although this strategy of shifting to more sales is not novel, due to the large investment of these companies in advertising, this strategy has become more prominent and compelling.

Furthermore, currently, the advertising of the two companies Temu and Shein has also had a significant impact on Meta's revenue, which may cause people to have an inaccurate understanding of Meta's overall business growth. As Meta prepares to release its fourth-quarter earnings report after the market on Thursday, analysts and investors are trying to assess how much of the two companies' advertising campaigns contributed to Meta's overall revenue and are considering whether this growth is sustainable in the future, particularly as these customers have been in the market for a relatively short time.

According to analysts surveyed by LSEG (formerly Refinitiv), Meta's revenue is expected to grow 22% this quarter to reach US$39.2 billion.

How did Temu and Shein influence Meta?

Temu was launched in 2022, while Shein was founded in 2012, and has only started actively advertising on social media in recent years.

Meta's financial director Susan Li said during the last earnings call in October that the company “benefits from the expenses of Chinese advertisers to reach customers in other markets,” echoing her comments in April. Although Meta didn't explicitly mention Temu and Shein, given their recent explosive growth, analysts generally speculate that they are the main players responsible for the increase in sales.

JMP analysts estimate that in the third quarter, Temu and Shein spent about $600 million and $200 million in ads on Facebook and Instagram, respectively. According to JMP, this means they account for around 3% of Meta's total growth over the same period.

According to Data.ai research, Temu reached 73.87 million downloads in 2023, an increase of more than 500% over last year. Shein's downloads grew by around 52% during this period, reaching 36.93 million times.

Meta was on the rise ahead of Thursday's earnings report. It is worth mentioning that the company previously experienced a sharp rise in inflation, rising interest rates, and a sharp rotation of technology stocks in 2022, which caused its market value to shrink by nearly two-thirds. At the same time, the company was also affected by Apple's iOS privacy changes at the end of 2021, which made it more difficult for brands to accurately obtain user needs.

Now, after hitting a record high last week, Meta hit another high this week and continues to rise. These investors, who are optimistic about Meta and believe its stock price will rise, have noticed that new ad spending from Chinese retailers such as Temu and Shein contributed to Meta's revenue, but they emphasized that Meta's business and financial health as a company is not entirely dependent on advertising by these Chinese retailers.

Among them, Harding Loevner's portfolio manager Chris Mack said that the rise of Temu and Shein showed “the power of Facebook as a platform for broad coverage.” However, he said the company's drastic cost cuts (20,000 layoffs last year), investment in artificial intelligence, and more disciplined operations are driving the Wall Street story. The company still has two years to adapt to Apple's changes and develop new advertising technology, thanks to the help of artificial intelligence.

According to FactSet data, Mack (Mack), the manager of a company with more than $500 million in Meta shares, said: “The Chinese market is like the icing on the cake for what they have achieved — it provides additional impetus.” He also added, “No matter what's going on there, this business works.”

But despite this, every bit of growth is significant for a company whose revenue declined for three consecutive quarters in 2022 and is expected to grow by only two digits in 2024, well below historical standards.

How are Temu and Shein impacting the e-commerce market?

The Zhitong Finance App learned that Brian Wieser, head of consulting firm Madison and Wall, estimated that the US had more than 7 billion US dollars in cross-border advertising revenue from China last year. The only data provided by Meta is the Asia Pacific region, which had third-quarter revenue of $6.9 billion, or about 20% of total revenue.

However, Meta isn't the only US internet company affected by Temu and Shein's rapid growth.

“There's no doubt that Temu and Shein are making an impact in the market,” Etsy CEO Josh Silverman told analysts during the company's third-quarter earnings call. “You can't do that much in such a short time without stealing market share from a lot of people. I think we and most players in the e-commerce space have had some impact.”

Additionally, Amazon has been inviting other companies to use its platform to promote competition in the marketplace. Juozas Kaziukenas, CEO of e-commerce intelligence firm Marketplace Pulse, said that Chinese sellers are buying ads related to it, thereby helping to enhance Amazon's growing advertising business.

Kaziukenas said, “People really misunderstood and underestimated how much the advertising industry is directly dependent on China.”

Meanwhile, Rishi Shiva, co-founder of growth marketing firm Pinebone, also said that Temu and Shein are willing to spend in ways other brands can't. Shiva claims that iOS privacy updates have made it more expensive to run campaigns effectively, which has led many companies to reduce their spending on Facebook over the past few years.

“In the Wish era, anyone with an app would advertise on Facebook,” Shiva said. He explained, “Any company that launches an app uses Facebook to try to attract as many users as possible.”

On the other hand, both Temu and Shein currently have sufficient funds, and they are actively investing in advertising. Analysts estimate that Shein's annual sales far exceeds $30 billion, while Temu's revenue in 2023 may have exceeded $16 billion. In Mack's opinion, there's no better advertising platform for them than Facebook.

“Whether it's TikTok, mobile games, or e-commerce ads, Facebook is the channel that provides the broadest coverage,” he said.

Editor/Jeffrey