The year-on-year growth rate of advertising revenue has slowed down due to both internal and external factors: weak performance in external consumption affecting advertisers' budgets; internally, after the low base effect, there is pressure on the growth rate in 2Q24.
According to the financial news app Intelligence, China International Capital Corporation released a research report stating that the year-on-year growth rate of advertising revenue for listed companies in the second quarter has slowed down overall, with a cautious outlook for 3Q24 and the second half of the year.
The year-on-year growth rate of advertising revenue for listed companies in 2Q24 is showing a slowing trend. China International Capital Corporation determines that the slowdown in the year-on-year growth rate is influenced by internal and external factors. Weak performance in external consumption affecting advertisers' budgets, and the advertising demand in the second quarter was more driven by the '618' e-commerce promotion in 2024, reflecting the weak momentum of consumption, leading to a weak year-on-year growth rate for advertising in 2Q24. Internally, after the low base effect, there is pressure on the growth rate in 2Q24.
There has been no significant change in the allocation of advertising budgets by advertisers, with transaction-oriented advertisements still leading in growth rate. Listed companies leading in year-on-year growth rate for advertising business in 2Q24 are Bilibili (+29.5% YoY), PDD Holdings (+29.5% YoY), Bluefocus Intelligent Communications Group (+23.4% YoY), and Kuaishou (+22.1% YoY), all primarily driven by performance-based advertisements; while online brand advertisements such as Weibo have shown flat revenue performance. In terms of offline media, China International Capital Corporation has observed an increased focus of advertisers on offline traffic, with top-tier media having budget acquisition advantages. Focus Media Information Technology achieved a 10.0% year-on-year revenue growth in 2Q24.
The overall expectation for the second half of the year is cautious, and it is recommended to pay attention to the performance of key consumption milestones, the incremental budgets in certain segmented fields, and changes in the budget competitiveness of advertising media. China International Capital Corporation, based on company's earnings conference statements and consistent expectations from Bloomberg, judges that the current market maintains a relatively cautious expectation for the advertising business in 2H24. Looking ahead, China International Capital Corporation believes that from the external macro perspective, attention can first be paid to important milestones for changes in consumption and advertiser budgets, such as the good increase in advertising during the Olympics in 3Q24 for beverages, sportswear and shoes, followed by focus on Mid-Autumn Festival, National Day, and 'Singles' Day' and other important milestones; secondly, attention can be paid to segmented industries and benefiting media that may have budget increments, such as gaming, short videos, e-commerce platforms which performed well in advertising increments in 1H24, partly driving the growth of Bilibili and Kuaishou's advertising revenue, continued focus on the performance of segmented sectors in 2H24. Additionally, advertising media continue to iterate their commercial capabilities; China International Capital Corporation believes that if breakthroughs are made in transactional and conversion dimensions, it may enhance the platforms' budget competitiveness, and recommends monitoring the iterative progress of various platforms.
Valuation and Recommendations
Maintain coverage company ratings, profit forecasts, and target prices.
Key recommendations: Focus Media Information Technology (002027.SZ, attractive dividend return, pay attention to macro recovery and the subsequent performance of consumer advertisers), Kuaishou (01024, relatively stable competitive landscape, strong profit release), focus on Mango Excellent Media (300413.SZ, strong content performance may accelerate the recovery of advertising margins), Bilibili (09626, BILI.US, continuous improvement in commercial efficiency, rapid growth in advertising revenue).
Risk
Economic downturn dragging down advertisers' willingness to invest, intensified industry competition, and regulatory policy changes.
