Battle for News feed Ads

Major internet companies still generate significant revenues from advertising models. As the softening macroeconomic environment continues to affect overall ad budget sentiment, internet companies are embracing opportunities and challenges by adapting to changing dynamics.
Specifically, 2016 has been challenging for search advertising post the Zexi Wei incident in April and stepped-up regulatory policy on search keyword ads. Baidu’s management reassured that it expects to complete its account review clean-up by 4Q16, we believe search ad growth will recover into 2017 from the impact in 2H16.

A more interesting development in 2016 has been the accelerated shift of ad budgets from brand ad inventory / demand to performance-based ads, driven by an increase in promoted news feed ad inventory (supplied by a broader number of new entrants and existing news portal players) and more ROI-driven ad spending awareness or demand by brand advertisers in light of the macro slowdown and big data analysis that enable better targeting of ads.

Major players are investing aggressively in mobile news applications. For example, Baidu launched news feed on Mobile Baidu in May this year. Since the launch, its daily active user numbers have grown 5x to 70m and time spent has tripled, per management remarks during the latest earnings call. For Tencent, in Mar16 it announced the launch of QQ Online Media Platform that allows a connection of channels among Tian Tian Kuai Bao, Tencent News, WeChat News and Mobile QQ News.

Alibaba’s marketing services revenues line continued to show strong acceleration, growing 47% y/y in the Sept quarter, compared with a year ago’s 39%. Tencent reported total ad rev growth of 51% y/y, driven by 83% growth in performance-based ads mainly thanks to the rev contribution of Weixin Moments. For Baidu, its online market revenues dropped 7% y/y due to the customer validation process for the medical and financial services sectors.

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