Meta CEO Mark Zuckerberg said Wednesday that Apple's recent privacy changes, as well as stiffer competition from companies like TikTok, could begin to wear on the company's ad platform.
The Facebook parent company's ad revenue hit $32.6 billion in the fourth quarter, an increase of 20% year over year, according to results released on Wednesday. But Meta forecasted that ad revenue would be between $27 billion and $29 billion in the first quarter of this year, which would represent a 3% to 11% increase year over year. The lackluster forecast, and warnings about “headwinds,” sent shares in Meta down more than 20% in after-hours trading.
Meta blamed the strain on the ads business on a variety of factors, but first named Apple, which implemented a new privacy framework on iPhones and iOS devices in the second half of last year. Apple locked down data that it shares with app developers, like Facebook, Snapchat, Twitter and others, making it more complicated to target ads to devices based on people’s internet habits. It also made it more difficult for marketers to measure ad performance.
“We anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes,” Meta said in its earnings release.
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Zuckerberg also called out rival TikTok specifically as a growing threat to grab consumers' attention.
"Apps like TikTok are growing very quickly," Zuckerberg said during the earnings call.
Facebook and Instagram built Reels to compete with Chinese-owned TikTok, a social video app that is rising in popularity with U.S. consumers and advertisers.
Meta executives explained that Reels presents a challenge, though, because the video format does not "monetize" as much as other parts of the platform. Zuckerberg said the business is not tuned enough yet for Reels, but anticipates an ability to drive revenue from the videos, citing Facebook, which once made the transition with the switch to mobile devices and the introduction of video stories.
Meanwhile, Meta saw 3.6 billion monthly users across its apps, which was up 9% year over year but at the same level as the prior quarter.
Read more: Inside Meta's Super Bowl commercial
Zuckerberg is trying to pull off a major course correction with his tech business, which rebranded last year from Facebook to Meta. The company plans to spend up to $95 billion in 2022, in part to pay for the development of the metaverse, the virtual reality world that Zuckerberg hopes supplants the older internet. Meta is running a Super Bowl commercial on Feb. 13, which will be the first brand campaign for Meta Quest VR devices, which is the new name for the former Oculus Quest goggles. Meta released a teaser for the commercial on Wednesday.
"I'm encouraged by the progress we made this past year in a number of important growth areas like Reels, commerce, and virtual reality, and we'll continue investing in these and other key priorities in 2022 as we work towards building the metaverse,"
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Meta also faces regulatory hurdles in Europe and the U.S. The Federal Trade Commission is suing the social network alleging that it is a monopoly. In the earnings report, Meta played up how it faces steep competition. “We expect continued headwinds from both increased competition for people's time and a shift of engagement within our apps towards video surfaces like Reels, which monetize at lower rates than Feed and Stories,” the earnings statement said.
Meta released details about how the ad platform is performing: The amount of ad impressions grew 10% in 2021 compared to 2020, and the price that advertisers pay for ads rose 24% in 2021 compare to 2020, signaling some inflation in the ad auctions.
Meta also said that inflation and supply chain problems in the world economy have impacted advertising.
