Pitch Perfect

In China, Ads Are Cool Again

Social and games used to get all the love.
Photographer: hakule/Getty Images

It's been almost three years since China's online advertising market looked so robust, according to earnings announcements from three major players.

Sina Corp. and its subsidiary Weibo Corp. reported fourth-quarter financials late Tuesday, followed by Baidu Inc. early Wednesday.

At 77 percent, Weibo's ad-revenue climb was the fastest since the second quarter of 2015. Even Sina, always a slower mover, managed 16.5 percent growth. Over at Baidu, revenue for that category climbed 33 percent. 1

Rebound

Sina, Weibo and Baidu all posted their strongest growth in advertising revenue for 10 quarters

Source: Bloomberg, Sina, Weibo, Baidu

Note: Data is based on U.S. dollars as Weibo and Sina report breakdown only that currency. All three companies get most of their revenue in yuan.

What's particularly telling about this growth is that it doesn't seem to have been driven by excessive increases in marketing budgets. That's a huge difference from Alibaba Group Holding Ltd., which reported a 90 percent increase in its sales and marketing spend, compared with just 56 percent revenue growth. Despite being labelled an e-commerce company, Alibaba gets most of its revenue from advertising and so such a comparison is reasonable.

You can see Sina's improved scale in its declining cost of ad revenue as a proportion of sales in that category.

Scale

Sina is spending less money to secure each yuan of advertising revenue

Source: Sina

If you break out Weibo, the trend continues to play out with a consistent decline in the expense ratio. Baidu, which has a higher cost basis, is also enjoying some economies of scale.

Spot the Theme

Weibo and Baidu, which get most of their revenue from ads, have seen relative costs decline

Source: Bloomberg

Increased mobile engagement is a constant also, with Baidu telling investors that time spent on its mobile app rose 30 percent during the period. Baidu gets almost all of its revenue from advertising, so such upside must benefit ad spend across its offerings.

After years marveling at the ability of Chinese companies to make money from content, social networks, and games -- Tencent Holdings Ltd. being the prime example -- it's quite a turnaround to see that advertising is actually cool again.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. The yuan growth rate was 26.3 percent, but since Sina and Weibo report U.S. dollar growth rates, I'm maintaining consistency across the company for comparative purposes.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net

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