Bank of America analyst Justin Post has reflected on the online ads market amid the rapid ascendance of China’s social media network TikTok.
The social media company is a market leader with “>90mins of daily time spent per active user,” clearly ahead of its US peers. The analyst also took note of other metrics that show TikTok is also the fastest-growing large-scale social network globally.
“Various press reports estimate TikTok’s ad revenues will grow >170% y/y in 2022 to over $12bn, which we estimate could represent a 210bps growth headwind for Western market competitors. We see TikTok’s traction as most challenging for Snap (NYSE:SNAP), Instagram, and YouTube, where the platform competes head-to-head for younger users and ad dollars, though FB, Pinterest (NYSE:PINS) and even streaming companies could see an impact,” Post said in a client note.
On a more positive note, Post believes that US usage share gains for TikTok may be peaking as user growth is slowing.
In the meantime, US social media companies continue to invest in short-form videos. For Meta Platforms (NASDAQ:FB), Post estimates a 2% revenue headwind in 2022 that could turn into a 1.3% tailwind by 2024.
“For YouTube Shorts, we estimate a $1.3bn revenue headwind in 2022, but opportunity to generate $9bn in Shorts revenue in 2024. Snap has held off on monetization, but if the company starts to monetize Spotlight by the Fall, we estimate it could generate around $89mn in revenue by year-end, representing a 1.5% revenue tailwind that could grow to 4% in 2023.”
The analyst also expects that the ramp of ads in the short-form video will act as potential 2H catalysts for both Meta & Snap.
By Senad Karaahmetovic