Just how bad will the pullback on U.S. advertising from Temu and other China e-commerce players hurt Facebook parent company Meta? Wall Street analysts are pondering that question as they set targets for Meta stock ahead of the company's first-quarter earnings report next week.
While Meta stock gained Wednesday on increased hopes that President Donald Trump will lower tariffs on China, the broad 145% levies on imports from the country remain in place. Trump is closing a U.S. trade exemption that has allowed e-commerce platforms like Temu and Shein to ship packages directly to Americans from China duty-free. China-based e-commerce companies are major ad buyers on Facebook and Instagram. Some market researchers say they are already pulling back U.S. spending in response to the trade changes.
The question for Meta stock is just how much revenue it could lose and whether other advertisers will step up in their place. Michael Nathanson, an analyst with MoffettNathanson, wrote a note to clients Tuesday titled "Meta: China, We Have A Problem." He reduced his price target on Meta stock to 525 from 710 while reiterating a buy rating.
"Over the past two years, Meta's ad revenues from Chinese-based advertisers have increased by $11 billion and sourced nearly 25% of company growth," Nathanson wrote. "While not all of that spending is e-commerce related, we forecast that perhaps $7 billion of that incremental spending could be at risk."
Analysts Cut Meta Targets
The MoffettNathanson note is among several that have cautioned investors about Meta's exposure to China. While Meta's Facebook and Instagram are banned in China, Chinese companies are free to advertise on the platforms to reach potential customers in the U.S. and elsewhere.
In 2024, Meta recorded $18.4 billion in revenue from China, about 11% of the tech giant's total sales last year. Meta's China revenue increased 34% in 2024 and 85% in 2023, according to its most recent annual report.
Temu is a major source of that spending. Morgan Stanley analysts estimate Temu spent $1.4 billion on ads with Meta last year.
But the company appears to be pulling back in response to the U.S.-China trade war. Temu's daily average U.S. ad spending on Facebook, Instagram, TikTok, Snap, X and YouTube declined a collective average of 31% from March 31 to April 13, compared with the previous 30-day period, according to recent estimates from market research firm Sensor Tower.
Citing the risks for Temu and other China-related revenue, Morgan Stanley analyst Brian Nowak cut his price target for Meta stock to 615 from 660 in a recent client note. But he reiterated a positive overweight rating. He wrote that other advertisers could step up for Meta's targeted advertising should China e-commerce companies cut back.
"As an example, consider the number and breadth of advertisers bidding to show ads to 'Men in Chicago interested in electronics, gaming and Marvel movies,' as opposed to the breadth of the keyword bidding on 'cheap iPhone charger,'" Nowak wrote.
Meta Stock: Rising Investor Fear
Meta stock still has a buy or equivalent rating from 88% of the 72 analysts following the stock. But Wall Street firms have been lowering their targets for the tech giant.
The average target price for Meta stock among analysts is 713.36, according to FactSet. That's down about 6.5% from February.
Evercore ISI analyst Mark Mahaney has held to a 725 price target for Meta stock and outperform call. In a client note Tuesday, Mahaney said digital advertising spending appears to have slowed this month.
But there are reasons to believe Meta could withstand a slowdown, he says. Meta's performance-focused advertising typically performs better than brand, or awareness-focused, ads. Plus, Mahaney said a "significant part" of the China-related revenue Meta collects comes from advertisers looking to reach non-U.S. markets.
"Our very recent conversations with investors make us believe that there are significant market fears that Meta's revenue growth could decelerate to (mid-single-digit percentage) year-over-year growth by this Q4, implying something like a 10% cut to current Street estimates," Mahaney wrote. "Tariff turmoil, regulatory uncertainty, and dropping consumer and enterprise confidence could all cause this to happen. But our most recent channel checks and our view on Meta's ad revenue resiliency make us believe this is not a probable outcome."
Meta Stock: Q1 Earnings
Meta stock has shed 10% year to date, compared with its 194% surge in 2023 and 65% gain last year. Even with gains on Monday and Tuesday, Meta stock remains well below its 50-day moving average and short of its 21-day moving average.
The tech giant will report first-quarter earnings after regular trading closes on April 30. Another event to watch for Meta stock will be Q1 results for Google parent company Alphabet late Thursday. Google is the only company with a larger share of the global digital advertising market than Meta.
