[ET Net News Agency, 3 September 2019] China's internet companies face increased
competition for ad spend as new players muscle into the country's mammoth digital economy,
according to S&P Global Ratings.
The credit rating agency believes companies with ad revenues not tied to e-commerce are
most vulnerable to the trend. It also expects overall online ad growth to remain robust if
slowing from the breakneck pace of recent years.
"We expect headwinds for some Chinese internet companies over the next few quarters as
increasingly popular platforms provide more real estate for companies that seek to
advertise online," S&P's credit analyst Clifford Kurz said in a report, titled "For
China's Internet Firms, Online Ad Competition Is Beginning To Byte."
The analysis shows a weighted-average 15% increase in ad revenue growth in
second-quarter 2019 for four leading internet companies. This is down from 27%
year-on-year growth in third-quarter 2018 for the four companies: Alibaba Group Holding
Ltd. (A+/Stable/--), Tencent Holdings Ltd. (00700)(A+/Stable/--), Baidu Inc., and Weibo
Corp. (BBB/Stable/--).
Beijing Bytedance Technology Co. Ltd. is likely a key driver behind the increased space
for advertising. Bytedance has seen significant user growth for its short-form video
platform, Douyin, and is monetizing this traffic.
Among S&P's rated internet companies, the agency believes the social media-platform
Weibo is most vulnerable to losing momentum in ad revenues. S&P has lowered its 2019-2020
base-case forecast for Weibo. By its forecasts, revenue will grow by 6%-10% in 2019, down
from 15%-20% in S&P's earlier estimate.
It also anticipates slower ad growth for online gaming and social media company,
Tencent, but this should be offset by stronger gaming revenues during the second half of
2019.
E-commerce giant Alibaba's revenues remain resilient. All three players are cash-rich
after years of rapid and high-margin growth. (KL)