CICC: Five core variables together build a high prosperity, and the digital advertising market is expected to maintain strong growth in 2026.

Zhongjin released a research report stating that the advertising industry will continue to be in a high prosperity state by 2025, with leading companies and independent technology platforms performing excellently. However, due to the high base brought by the 2024 election and Olympics, coupled with the weak macro environment in 2025 such as the slowdown of the US economy and tariff headwinds, the industry should enter a "low year". The divergence of core platform outstanding performance from the aforementioned external environment prompted the firm to propose an "exchange rate + inventory + algorithm three-level funnel" attribution model to re-examine the true intrinsic driving engine of the industry. Key points from Zhongjin are as follows: Review of the 2025 advertising industry: headwind accelerates high growth, "three-level funnel" reshapes intrinsic dynamics. The firm found that the overseas digital advertising market in 2025 increased by 16.2% to $616.7 billion, achieving consecutive growth from the high base of 2024, with giants like Alphabet, Meta, and independent platforms like AppLovin resonating positively. The firm believes that the market's accelerated growth beyond expectations is driven by the resonation of the three-level funnel: 1) exchange rate tailwinds bring apparent revenue recovery; 2) the penetration of short videos combined with unlocked streaming advertising releases scaled premium inventory; 3) the deep restructuring of micro-level AI enhances core funnel elements like "recall" and "ranking," effectively improving system monetization efficiency and advertiser ROAS. Outlook for the 2026 advertising industry: resonance of cycles and technology build high prosperity with five core variables. Standing at the starting point of 2026, the firm believes that the prosperity of the overseas advertising industry is likely to continue. 1) Cycle return: 2026 will enter a typical "sports + politics" major year, injecting strength into the market. Different from the base pressure of 2025, 2026 will see major sports events and core US political elections with high commercial value. 2) Macro echoes: The tailwind of exchange rates in 1H26 may continue to boost apparent revenue performance. Due to the lagging impact of the overall decline of the US dollar index in 2025, the firm believes that major multinational advertising platforms are still expected to benefit from exchange rate tailwinds in 1H26. 3) Product dividends: The continuous release of commercial dividends from short videos drives steady expansion of premium inventory. The firm believes that as the penetration of short video content in the minds of global users continues to rise, and algorithmic recommendations optimize distribution efficiency, top platforms still have natural growth potential in short video user time. 4) Technological deepening: The underlying AI recommendation model enters a "dividend release period," reshaping the monetization funnel for the entire industry. The firm believes that the actions of major companies in 2025 are mostly about rejuvenating the underlying infrastructure, while 2026 will be a crucial year for the market to transition from "point breakthroughs" to "systematic dividend realization" driven by AI. 5) Evolution of the landscape: AI-native platforms are initiating commercial experiments, expanding the market boundaries but finding it difficult to substantially reshape the advantages of leading companies. The market is currently highly focused on the potential impact of AI-native companies like OpenAI on advertising monetization in 2026. At the micro-level of competition, the firm believes that new AI forces may have a hard time substantially changing the competitive advantages of existing leading companies in the short term. The firm believes that core companies have difficult-to-replicate commercial infrastructure and differentiated scene barriers. In addition, the firm observes that AI-native platforms are facing "credibility erosion" challenges in the early stages of commercialization. Based on the above monetization thresholds, the firm believes that advertising budgets will still relatively stably settle in existing top companies in the short to medium term. Risk warning: AI business development falls short of expectations; geopolitical risks; regulatory factors.