When President Trump announced this week the sweeping of tariffs, some of the largest technological companies had obvious reasons for concern.
Apple, Dell, Oracle-Karse rely on hardware and global supply chains that are in direct fire from tariffs-have seen their shares in free fall. However, there was another large technology company whose shares took pummeling, although its main business has little to do with hardware: META.
Shares that own Facebook, Instagram and WhatsApp dropped $ 531.62 on Thursday on Thursday and were down again on Friday. A total of Meta on Thursday deprived an incredible 9 percent of its market capitalization.
The reasons for Meta’s Slide are less obvious. But the close observers of social networking and MetaSe Company know that it is equally vulnerable to Mr. Trump’s business events as some of his peers Silicon Valley, even if the details are more complicated. Here’s the reason.
What does the meta give? It’s not in the same hardware companies as Apple or Nvidia.
This is not entirely true, but for our purposes, let’s look at the main business META: Digital advertising.
Meta Rrakes in billions of dollars by selling ads on Facebook and Instagram. Some of these advertisers are large brands, including Procter & Gamble, L’Oreal, McDonalds and Nestle. These companies buy ads on Facebook for so -called brand awareness campaigns. Think about it as a way to throw people to go to the store to buy a specific product, such as Q-Tips, instead of generic cotton swabs.
However, the vast majority of META advertisers are small and medium -sized businesses.
These companies buy a different kind of advertisement called “Direct advertising”. These ads usually support an event, such as downloading the company or buying a kitchen gadget performed on an instagram video.
Electronic trading transactions, such as these, make up a huge number of very successful online advertising business. This year, Susan Li, the META CFO, said that online commercial advertising was the “largest contributor to year -on -year growth” to the company’s advertising.
What does this mean?
The effect of tariffs on META advertising business is simple. Many of his small and medium advertisers come from all over the world. President Trump’s tariffs will immediately sell their products to customers in the United States.
This is likely to lead to total purchases from consumers and fewer people buy products from Facebook and Instagram. This in turn could lead to the brands to spend less advertising across these applications.
It seems somewhat hypothetical. Could it really lead to such a large decrease in stocks for meta?
Meta has other complicating factors that can affect its business more than other advertising companies.
Last year, the company published that 10 percent of its income in 2023 came from Chinese companies that strongly spent on advertising on Facebook and Instagram, which is an advertising blitz aimed at gaining support to lucrative western markets.
Much of this growth was supported by an explosive expansion of the rapid fashion company Shein-with the seat in Singapore, but has a supplier chain, which is mainly in China-A applications for electronic trade Tem, low-cost company similar to Amazon, which owns the Chinese electronic commercial conglomerate Pinduod. According to Bernstein Research estimates, it is estimated to spend marketing costs in 2023 spending $ 3 billion at marketing costs.
President Trump’s tariffs were hard to hit by Chinese society and goods. In addition, Mr. Trump ruled out the liberation from “de minimis”, which liberated the exporter who sent goods worth worth or less than $ 800 from the fact that they had to pay obligations. The exception was necessary for the business model Tem and Shein for the sale of low -cost goods to Americans.
If Mr. Trump’s tariffs were held, it could drastically hurt these cheap Chinese exporters, which means they could reduce their advertising on Facebook and Instagram.
How exposed is a meta?
Last year, when calling investors Mrs Li, Mrs Li prevented the company’s exposure to any Tem and Shein expenses.
She said two -thirds of the income from Chinese advertising Meta came from advertisers “outside the 10 best spectators in this country in 2023.” Her meaning is: although Tem and Shein have retreated back, many other Chinese advertisers were still buying ads on Facebook and Instagram.
Unfortunately, this wide base of advertisers is not ensuring Mr. Trump’s tariffs, which will affect all Chinese buyers of advertising.
“Because their Chinese advertising revenue is so evenly distributed, it’s actually worse for them,” said Eric Seufert, an independent mobile advertising analyst who follows the meta. “He doesn’t just have to worry about falling or Shein falling. He has to worry about all.”
The meta did not answer the comment requests.
Oof.
To be righteous, the meta is not alone. E-commerce of the Technology Society such as Shopify and Stripe could face headwinds if the global store slows down. Google and Amazon also have huge advertising companies that could be limited to the expenses of Chinese companies.
We will soon hear a metaint defense. The company is expected to answer investors’ questions when it shows quarterly earnings at the end of this month.
