Facebook Expects 'Ad-Targeting Headwinds' From Apple’s Privacy Changes

Facebook reported strong first quarter earnings on Wednesday amidst industry-wide concerns around how Apple’s latest privacy changes will affect the digital advertising business, a space that Facebook dominates. "We had a strong quarter as we helped people stay connected and businesses grow," said Facebook founder and CEO Mark Zuckerberg. "We will continue to invest aggressively to deliver new and meaningful experiences for years to come, including in newer areas like augmented and virtual reality, commerce and the creator economy." In the first quarter, total revenue increased 48% year over year to $26 billion, nearly all of which came from Facebook’s advertising business. Headwinds in second half of the year Facebook CFO David Wehner said the company benefitted from a 30% year-over-year increase in average price per ad and a 12% increase in the number of ads the company delivered. “We expect that advertising revenue growth will continue to be primarily driven by price during the rest of 2021,” Wehner said. Wehner said he expects revenue growth to be stable or accelerate in the second quarter, but anticipates headwinds in the second half of the year, saying he expects “revenue growth to significantly decelerate” in that period. “We continue to expect increased ad-targeting headwinds in 2021 from regulatory and platform changes, notably the recently launched iOS 14.5 update, which we expect to begin having an impact in the second quarter.” He also expressed continued concern around transatlantic data transfer stemming from Europe’s regulations. Facebook’s user base grew to 2.85 billion monthly active users, up 10% from last year, or 1.88 billion daily active users, up 8% from the year before. Additionally, the company’s headcount increased 26% year over year to north of 60,000 employees. There were 195 million daily active users in the United States and Canada, numbers consistent with Facebook usage pre-pandemic. "It appears that in this region, the increases in engagement that we saw last year (when people turned to Facebook and other social platforms to connect and share while staying at home) are going away," said Debra Williamson, eMarketer principal analyst at Insider intelligence. Apple wants privacy, Facebook wants access This quarter represents the final full earnings period in which Facebook’s numbers will be unaffected by Apple’s privacy changes, under which users will have to opt in to have their data shared across apps and websites. It’s still an open question how Facebook and other internet companies will fare as the Covid-19 pandemic subsides. “Facebook so far has been an unstoppable force, sweeping up advertising spend—not only unimpeded by the pandemic, but actually boosted by it,” said Ashley Cooksley, chief client officer and managing director of The Social Element, a social media-focused agency. “But with Apple’s App Tracking Transparency efforts now forcing Facebook to ask its mobile users for permission to use tracking technology, the platform could soon be at risk of losing its grip on some serious ad dollars in this battle of philosophies. Apple wants privacy built into the internet, while Facebook wants an infrastructure of access.” EMarketer's Williamson said that Facebook has done well to weather the pandemic storm: "One year ago at this time, there were significant questions about how well Facebook could withstand the effects of the pandemic on its business,” Williamson said. “We now know that it didn't just weather the storm; it got even stronger.” Facebook's stock rose around 6% in after-hours trading upon the announcement. Apple Has Finally Implemented Its Privacy Overhaul, Here’s What You Need to Know