Meta's (META.US) core online advertising business may suffer a $7 billion loss this year as U.S. President Donald Trump's tough tariffs on China affect Chinese retailers.
According to a research report released by MoffettNathanson on Tuesday, during the trade dispute, retailers with ties to China such as Temu and Shien cut their Facebook and Instagram advertising budgets, which will affect Meta's performance.
According to Meta's latest annual report, the company's revenue from the Chinese market in 2024 will be $18.35 billion, equivalent to a little more than 11% of its total sales. Like other analysts, MoffettNathanson analysts believe that Temu and Shien make up the majority of Meta's Chinese business, and if the two online retailers cut advertising this year, Meta's advertising sales in 2025 may be affected by $7 billion.
Analysts said Temu reduced its U.S. ad spending and saw its ranking in the Apple App Store drop significantly after Trump imposed tariffs on China.
“The importance of the Chinese market to Meta’s business cannot be overstated,” the analysts wrote in the report. “While Meta does not provide a country-by-country breakdown of revenue within Europe, it would logically be reasonable to assume that China is Meta’s second-largest revenue source after the U.S. — an unusual position for a country where Meta has no users or active platform.”
Meta’s woes could be exacerbated if the U.S. economy falls into recession, as some analysts predict. MoffettNathanson analysts said a “real and prolonged recession” combined with the trade dispute “could cause Meta to lose $23 billion in ad revenue by 2025 and reduce its 2025 earnings by 25%.”
"As previously mentioned, we believe Meta is particularly vulnerable to cuts in spending by Chinese advertisers," the analysts said. "If heightened trade tensions trigger or exacerbate a recession, Meta would face a double whammy: cyclical advertising weakness and a targeted decline in Chinese ad spending."
MoffettNathanson analysts maintained their "buy" rating on Meta but have cut their price target by $185 to $525.
Meta's stock price has fallen about 19% to $499.36 since Trump was officially sworn in as U.S. president for the second time.
The company will report first-quarter earnings next Wednesday.