Meta Platforms (META 3.91%) stock sank to a seven-year low of $88 last November. At the time, investors were disappointed with the decline of its advertising business -- which had struggled with Apple's privacy changes on iOS, fierce competition from ByteDance's TikTok, and other macro headwinds -- and its commitment to burning billions of dollars to expand its unprofitable Reality Labs segment.
But if you had bought Meta when all of the bulls retreated, you would be sitting on an unrealized gain of nearly 240% today. That rapid recovery was driven by its ad revenue, which finally rose year over year in the first two quarters of 2023 and ended a three-quarter streak of year-over-year declines.
However, that recovery was mainly driven by a surge in ad spending from Chinese e-commerce companies that were targeting overseas buyers with their cross-border marketplaces.
Meta didn't name any specific companies during its latest conference call, but I believe Pinduoduo's (PDD 0.74%) Temu, Shein, and Alibaba's (BABA 2.16%) AliExpress are its most likely clients. All three of those Chinese cross-border marketplaces have soared in brand recognition and popularity over the past year among overseas shoppers. Therefore, Meta's gains could actually cause pain for Amazon (AMZN 3.89%), which also relies heavily on cross-border sales from China.
NASDAQ: META
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Should Amazon worry about its Chinese challengers?
Amazon doesn't name Temu, Shein, or AliExpress as potential threats in any of its latest SEC filings. However, according to the latest app store rankings on Data.ai, Temu and Shein are currently the two most downloaded shopping apps in the U.S. on iOS and Android. And in an ironic twist, Temu is the most downloaded shopping app on Amazon's own FireOS.
Temu and Shein both target younger and budget-conscious shoppers with cheap products and aggressive social media campaigns on TikTok and Meta's Reels.
Pinduoduo didn't reveal any specific growth metrics for Temu in its latest report, but its vice president of finance, Jun Liu, said the app was still in a "learning stage" as it remained "laser-focused" on "understanding and accepting" the "different cultural preferences, social environments, and consumer demand" of its overseas customers. As the fastest-growing e-commerce leader in China, Pinduoduo could replicate its recipe for domestic success to turn Temu into an overseas powerhouse.
Privately held Shein's management said during an investor presentation earlier this year that the company's revenue rose 57% in 2021 and 45% in 2022. It believes it can keep growing its revenue at a compound annual growth rate (CAGR) of 37% through 2025.
NASDAQ: AMZN
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By comparison, Amazon's North American and international sales increased by only 11% and 5% year over year, respectively, in the first half of 2023. Its third-party seller services, which accounted for 24% of its top line, grew 18%, but a lot of that growth also comes from Chinese merchants who are shipping their products to overseas buyers.
It's too early to tell whether Temu and Shein will meaningfully throttle Amazon's long-term growth. However, Meta's soaring ad sales to Chinese e-commerce companies and the growing popularity of Temu and Shein in the U.S. raise a few red flags.
Amazon's pain could generate near-term gains for Meta
The growth of China's cross-border marketplaces could cause headaches for Amazon, but it should generate near-term tailwinds for Meta. That influx of Chinese ad revenue should buy it more time as it expands Reels to counter TikTok and updates its advertising algorithms to circumvent Apple's iOS changes. It also reveals how Meta still generates revenue from Chinese companies even though its social media platforms have been banned in mainland China for the past 14 years.
Meta still faces some near-term macro and competitive challenges, but analysts expect its revenue and earnings to grow 14% and 56%, respectively, this year, as its advertising business finally recovers. Those are impressive growth rates for a stock that trades at just 19 times forward earnings, so investors should buy Meta right now, as China's ambitious e-commerce companies continue to use its social media apps as staging grounds for a long-term assault against Amazon.
