eMarketer Cuts Alibaba Ad Forecast

Despite a downgrade to their ad forecast in China, eMarketer says that digital ad spending will still grow 5% this year. But there will be a power swap among the major platforms, as Tencent becomes the No. 2 publisher, displacing Baidu. Top player Alibaba will remain No. 1, but with lowered expectations.

Alibaba’s ad revenue is almost three times Tencent’s, but its growth story will not be as rosy in 2020. In recent years Alibaba has successfully leveraged its ecommerce platforms to generate a whole new line of search ad revenue, akin to the Amazon model in the US. In 2016 and 2017 Alibaba saw 40+% growth rates in digital ad revenues across its various properties, and last year that rate was still 24.3%.

This year, however, with online customers pulling back on spending and searching more for basic staples and less for high-end consumer products, eMarketer forecasts Alibaba’s net ad revenue will grow by only 6.5% (down from the pre-pandemic estimate of 19.3%). This decline will be driven by a dramatic deceleration in Alibaba’s search ad business, which grew by 41.2% last year but will grow by only 8.9% this year. Still, Alibaba’s combined ad revenue of $27.05 billion will easily lead the pack, and represents 35.9% of all digital ad dollars spent in China. eMarketer also forecasts a strong rebound for Alibaba next year, to the tune of 16.8% growth, as China’s macroeconomic conditions return to relative normalcy.

Baidu will bring up the rear among the BATs, in terms of 2020 performance, growth, aggregate revenue, and long-term outlook. Although Baidu still towers over niche players like Sina and Sohu, Their net ad revenue this year will drop to its lowest point since 2016. Baidu’s $7.85 billion will represent a 14.3% drop year-over-year, coming after a 2019 that also saw an 8.0% decline. “Baidu has had trouble attracting search ad dollars, despite being free of competition from Google,“ said eMarketer forecasting analyst Ethan Cramer-Flood. “Advertisers are showing that they increasingly prefer the reliability of Alibaba’s platforms for their search spend.“ Baidu’s decline means that, for the first time ever, Tencent will move into the No. 2 position for net digital ad revenues, claiming 12.6% of China’s total spend, to Baidu’s 10.4%.

Digital ad spending of $75.33 billion total will easily rank China as the second-largest market for digital advertising in the world (behind only the US at $134.66 billion). Also, China’s 5.0% growth rate in digital ad spending still ranks among the fastest in the world, despite the rapid slow down. China will be one of only two countries where advertisers grow their digital ad spending at double-digit rates every year from 2021 through 2024, leaving China with $120.90 billion in digital ad spending by 2024. (India is the other such country.) This will put China far ahead of the No. 3 market (the UK with $29.18 billion), but far behind the US at No. 1 ($225.66 billion).