- If I had to name a few companies that continue to find ways to navigate themselves out of challenging circumstances, Meta Platforms would be right up there.
- When Apple rolled out App Tracking Transparency in April 2021, Meta estimated a $10 billion hit on revenue.
- Meta Advantage, a product suite combining automated ad designing and distribution features, was launched in March 2022 to navigate the threats posed by Apple.
- Recent engagement data suggests Meta is coming back strongly amid challenging macroeconomic conditions limiting the growth of the advertising industry.
If I had to name a few companies that continue to find ways to navigate themselves out of challenging circumstances, Meta Platforms, Inc. (NASDAQ:META) would be right up there. Whether it be legal threats thrown at the company by policymakers around the world or competitive threats, Meta finds a way to overcome them in the long run, which is one of the primary reasons why I feel comfortable as a long-term-oriented shareholder who does not plan to divest META anytime soon. When Apple, Inc. (AAPL) rolled out the App Tracking Transparency feature as part of the iOS 14.5 update in April 2021, Meta claimed its revenue would be impacted by at least $10 billion in 2022. In March 2022, I published an article discussing why investors need not panic although this was a major threat to Meta’s advertising business. We now have data to suggest Meta is successfully navigating this threat by turning the tables around.
Meta has been experimenting with automated ad tools for a few years, and in March 2022, the company announced a new product suite named Meta Advantage combining all the automated ad tools offered by the company. There are two types of automated products available under this category.
- Meta Advantage – Products that allow an advertiser to enhance a specific aspect of a manually set up advertising campaign.
- Meta Advantage+ – Products that allow an advertiser to completely automate an advertising campaign from selecting audiences to setting up a budget.
At the time of announcing this product suite, Meta claimed completely automated campaigns saw a 9% lower cost per action compared to manual campaigns driven by the capability of AI tools to use real-time learnings to adjust the targeted audience and ad placements. At the time, many investors and analysts paid little attention to the data provided by the company as the performance of these products had to be observed for an extended period of time under different market conditions to gauge a measure of the value they add to an advertiser.
With a focus on enhancing the automated ad setup experience, Meta launched new automation tools including Advantage+ Shopping Campaigns in August last year. To expand the AI experience to other aspects of its social media platforms, Meta is developing many other AI tools and experiences as well, including LLaMA, a large language model.
Recent Data Suggests Meta Is Coming Back Strongly
Meta reported stellar revenue growth of 37% in 2021 on the back of a strong 2020 that saw revenues increase by 22%, but things took a turn last year with revenue declining just over 1%, which marked the first YoY revenue decline in the company’s history. Meta had already warned of a $10 billion hit on revenue resulting from Apple’s privacy features, and the company’s efforts to mitigate this impact were overshadowed by a weakening ad industry.
In a recent update discussing the progress of the Advantage+ product suite, Meta revealed how Doughp, a small business that sells prints of cookie dough, used these AI tools to boost the performance of its ad campaigns. This is not the only company to have seen a notable improvement in ad performance with the help of fully automated campaigns. Roberto Mendoza, associate director of iProspect, shared with the Financial Times that every $1 spent on a campaign through Advantage+ has returned $7, nearly as high as before the rollout of Apple’s privacy features. David Hermann, president of Hermann Digital, estimates that ad returns are at least 20% higher after his firm began working with Advantage+. According to Tinuiti data, brands that used Advantage+ Shopping Campaigns saw a 20% reduction in CPMs and a 15% decrease in cost per click, which highlights how automated campaigns can deliver more bang for the buck.
On the flip side, according to the Financial Times, some marketers do not feel comfortable working with Advantage+ as they have to give more control of their data to Meta. Meta has a history of failing to protect consumer data, and investors should not downplay this risk. However, I believe the privacy concerns stemming from Advantage+ are no different from the privacy concerns the company and its shareholders have dealt with over the last few years.
The way Meta tracks the activity of users is changing with a renewed focus on how users react to public posts, which the company then uses to enhance its AI models using machine learning to drive the performance of ad campaigns. Early performance data from Meta Advantage+ suggests automated ads are improving the performance of marketing campaigns while lowering costs, which is proof that the company’s new strategy is delivering the desired results. The company is moving in the right direction to mitigate the impact of Apple’s new privacy enhancements, but a notable improvement in its financial performance can only be expected when macroeconomic conditions turn favorable as the advertising industry is highly correlated to the strength of the economy. I am bullish on Meta as I believe the advertising business will blossom in the coming years, enabling Meta to monetize its Asia-Pacific userbase better. There is hope for a potential monetization of WhatsApp too. Metaverse investments might yield better returns in the long run, but even without accounting for such gains, I find Meta Platforms stock attractive.
Disclosure: I/we have a beneficial long position in the shares of META either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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