Facebook/Meta earnings call: Competition, ad-privacy issue present growing challenges
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Meta Platforms (NASDAQ:FB) stock is now down nearly 23% postmarket, a couple of hours after it posted an earnings report that sent the stock reeling.
The company grew revenues by 20%, and net income still surpassed $10 billion despite an 8% drop. But signs of the mounting challenges for the company (in the short term at the very least) were spaced throughout an hourlong earnings conference call.
One notable item was revenue guidance for Q1 that fell well short of analyst expectations: for $27 billion-$29 billion (3%-11% growth year-over-year), and Chief Financial Officer Dave Wehner suggested the company would face headwinds both in impression and price growth - with price affected by "modestly increasing ad targeting and measurement headwinds from platform and regulatory changes."
On the conference call, Wehner was able to add some color to that factor: He estimates that Apple's ad tracking privacy changes would cost Meta a hefty $10 billion in ad revenue this year. The fourth quarter of 2021, meanwhile, was the first holiday season for the iOS changes to hit small businesses (which rely on digital ads to grow).
He also acknowledged the impressions challenge coming from heavy penetration of products like Facebook and Instagram. Seeing monthly active users and daily active users in the U.S./Canada "bounce around" somewhat should be expected given the existing market penetration, and the company also sees headwinds globally in places like India, where it faced user challenges like rate plan increases.
CEO Mark Zuckerberg did his typical preview of the company's focus to introduce the call, but also highlighted two challenges in particular: One is increasing competition, a subject that was previously absent from the company's earnings calls.
He even acknowledged the elephant in the room: "Apps like TikTok (BDNCE) are growing very quickly," and that shows why a heavy focus on Meta's short-form Reels format is "so important over the long term." Not only is Reels undermonetized in a way that recalls Facebook's moves to features like Stories, but also Meta's in the middle of a transition on its own services where short-form video is displacing some time otherwise spent on News Feed and other services, he said.
Reels was at the front of Zuckerberg's mind throughout the comments. On some new products, he noted, the company has said it's closer to the beginning of the journey than the end, meaning there are lots of fundamental questions to overcome.
Not so with Reels. "There is a very clear product/market fit. We face a much bigger competitor in TikTok. Do we have the content we need? It's a flywheel," so it's dependent on having the right pieces in place. "For the coming quarter, it's going to monetize at a slower rate, but it's the right way to go."
As for the iOS challenges, there's "less data available to deliver relevant ads" - but people still want relevant ads, and so do businesses, he said.
The company has confirmed that its namesake app, Facebook, lost users quarter-over-quarter for the first time ever - by about half a million.
Meta's report has also pummeled other social media stocks in Wednesday's postmarket session.