2/12/2024: Happy Chinese New Year of Dragon

Happy Chinese New Year! I have been busy hosting an old friend from Taiwan and making some startup investments so I haven’t been making a lot of posts lately. But I do plan to get back to daily posts later this week. A lot has happened in the past week. 

Last week, S&P 500 closed above 5000 for the first time ever. Nvidia stock had an amazing run, up 50% YTD with a staggering $1.78T market cap. At the same time, Pinterest and Snap reported underwhelming earnings last week. SNAP 0.00%↑ stock dropped 35% after the earnings report while PINS 0.00%↑ stock dropped 10%. I found it quite interesting that Meta is doing so well with its ad revenue growing 23% YoY while Snap, Pinterest and Google only grew their ad revenue 5%, 12% and 11% YoY respectively. I did a little bit of digging and the only thing I could find is that advertisers from China have been spending a lot on Meta’s ad platform. Meta CFO said that China sales contributed 5 percentage points to its total revenue growth last year (2023). Meta’s revenue grew ~15% for 2023. In other words, 1/3 of the revenue growth is from China advertisers. The quarterly breakdown was not available but I wouldn’t be surprised if a large portion of that 23% Q4 revenue growth is from China advertisers.

I have a conspiracy theory on why China advertisers spend so much on Meta. It’s a bit far-fetched that I don’t fully believe it myself but it’s a possibility. Basically, some of the ad spending is a way to transfer money out of China. Chinese sellers advertise on Facebook to sell games or cheap merchandise to American consumers. The revenue will end up in bank accounts in America while Chinese merchants spend down their RMB. They don’t even need to make money from the transactions if their main goal is to transfer money out of China, which has become increasingly difficult. Anyway, Meta’s dependence on China advertisers is a risk factor investors should watch out for. It will be disastrous if the Chinese government ends up banning this type of capital outflow. But 2024 is not going to be an easy year for China. Who knows what will happen?   

Happy Chinese New Year! I wish you all a prosperous, healthy and peaceful Year of Dragon!