Meta Platforms Earnings Preview: Ad Sales Growth To Stall On Apple Privacy Changes
Investing.com | Feb 02, 2022 16:11
- Reports Q4 2021 results on Wednesday, Feb. 2, after the market close
- Revenue Expectation: $33.34 billion
- EPS Expectation: $3.85
When Meta Platforms (NASDAQ:FB) reports its latest earnings today, investors will likely focus on the impacts of Apple's (NASDAQ:AAPL) overhaul of its privacy settings to the social media behemoth. Menlo Park, California-based Meta is the parent of Facebook, Instagram and WhatsApp among other widely used social media platforms.
Meta struck a cautious tone in its last earnings call in October, saying that revenue growth could stall as Apple's new rules impede the data collection on mobile devices at a time when the pandemic-fueled boom in its ad business slows.
Since then, FB's stock has traded sideways, adding only 1.7% over the quarter. However, the broader market growth stock selloff in 2022 has also weighed on the company's share price, propelling a -6.4% loss in January. It closed on Tuesday at $319.
Apple's privacy changes to its iOS operating system have made it challenging for social media companies to target ads. The changes, first announced in April 2021, require apps to ask users whether they allow tracking.
Consequently, companies now have less data available with which to direct ads at appropriate audiences and receive information regarding how well those ads performed.
In October, Snap (NYSE:SNAP) blamed the Apple policy for an expected slowdown in revenue growth for Q4, leading its stock price to fall more than 50% since then.
In addition to headwinds related to Apple's privacy settings, Meta and other social media companies are also seeing their growth hurt by supply-chain disruptions globally that make it difficult for small and medium-sized businesses to fulfill their orders.
h2 Upside Potential Over Long Term/h2Despite these sources of turbulence, investors continue to see long-term value in owning Meta stock, especially when its family of apps continues to add more users. In an poll of 55 analysts, 46 rate Meta as "Outperform" with a 12-month consensus price target of $395.37, implying 23.9% upside potential.
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Source: Investing.com
Over the past two years, as people flocked to social media apps to keep up with loved ones and enjoy digital entertainment during the pandemic, Facebook has benefitted.
While the pandemic-related boom in ad spending slows, the company's CEO Mark Zuckerberg is shifting a significant portion of its resources to build out the metaverse—a term used to describe an immersive digital environment where people spend time together in virtual worlds.
In a recent note, Goldman Sachs analyst Eric Sheridan said he sees Meta as a long-term secular winner concerning the metaverse and well-positioned to capitalize on the next wave of computing. His note adds:
"Over the past several quarters, Meta Platforms has laid out its long-term vision for positioning the company for Web 3.0 and the metaverse as a successor to the mobile internet, including a company name change and a commitment to scaling investments against this opportunity."
As well, if history provides any clue, Meta shares have rebounded strongly after every significant crisis the company has faced over the past few years, including intense regulatory and media scrutiny regarding its platform's vulnerability to misuse and breach of user privacy.
The reason for this is simple: businesses can't afford to ignore the FB platform due to the company's massive global reach. By the end of the third quarter, daily active users for the company's family of apps had surged to 2.81 billion.
h2 Bottom Line/h2Meta Platform earnings could come under pressure, mainly due to Apple's new privacy settings and slowing digital ad spending. But any weakness would be an opportunity for buy-and-hold investors looking to add shares on the dips.
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