Facebook's Q4 Ad Concerns Linger

Facebook reported revenue of $29.01 billion for the third quarter of 2021, up 35% year over year, but short of analysts’ projections of $29.57 billion. If it weren't for Apple’s iOS 14 changes, the platform said it would have seen positive quarter-over-quarter revenue growth. Profit, as well as users, grew, but while investors mostly shrugged off any reputational damage to the platform based on leaked documents alleging that it prizes profits over safety, Apple's ongoing user privacy crusade and labor shortages paint a more concerning picture for the next quarter's ad revenue. “The third quarter is normally a slower quarter for Facebook, but this was the first time that revenue was flat compared to the second quarter," Martin Garner, chief operating officer of mobile and wireless industry analysis firm CCS Insight, said in an email to Adweek. "This was mostly down to Apple’s app tracking transparency, but also partly because of more physical shopping as pandemic conditions eased, and partly because of supply chain issues and labor shortages: Why advertise if you know you can’t deliver?” On the measurement front, Facebook said last month that in aggregate, it has been underreporting iOS web conversions by approximately 15%, with individual advertisers falling into a broad range. Real-world conversions, like sales and application installs, are higher than what’s being reported for many advertisers. The company said it will address more than one-half of the underreporting by the end of this year. But that progress isn't enough to counter other ad headwinds concerning analysts. “So, where does Facebook sit on the hierarchy of impact and exposure? Near the top," Wayne Coburn, director of product, analytics and artificial intelligence at cross-channel marketing company Iterable, told Adweek. "When taking into account business scale, first-party data access, iOS changes, the proportion of revenue attributed to ads and an informed public, it's clear that, with higher opt-out rates from people who do not want to receive personalized third-party ads, ad-spend on Facebook will decrease, yielding revenue losses in the short and long term.” Apple and pandemic-related factors cloud fourth-quarter projections Facebook projects revenue for the fourth quarter of 2021 to fall between $31.5 billion and $34 billion, due to uncertainty from Apple’s changes and pandemic-related factors. The Facebook juggernaut is still an efficient way for marketers to reach audiences, and that's not disappearing overnight. “Fueled by 10.5% growth from the second quarter to the third quarter of 2021, marketers spent 43.4% more on Facebook and Instagram advertising than they did in the third quarter of 2020," Yuval Ben-Itzhak, chief of strategy at customer experience and social marketing platform Emplifi, told Adweek. "Ad spend matched the high mark seen in the fourth quarter of 2020, during the holiday season, when spend is typically at its highest. If this trend continues, a new high is likely coming in the fourth quarter of 2021.” Others agree that Facebook has done a better job weathering the storms of Apple's privacy measures and lower ad demand than platforms like Snap Inc. “While Apple’s requirement that users agree to ‘being tracked’ is resulting in reported opt-in rates of just 16%, the impact will be gradual, and Facebook likely has a much higher opt-in rate," Mike Woosley, COO of data solutions provider Lotame, told Adweek. "It has done a better job in making its case and providing meaningful value. Snap, which got decimated with a 25% plunge in share price, only missed its own revenue target by 3%, all the while showing torrid revenue and user growth.” Despite representing a major part of the news cycle in recent weeks, all of the leaked Facebook documents were barely touched upon during the earnings call, save for one stretch of CEO Mark Zuckerberg’s opening remarks that suggested “a coordinated effort to selectively use leaked documents to paint a false picture of our company.” Starting with the fourth quarter of this year, Facebook will change its reporting structure to a two-segment model: Family of Apps, which will include Facebook, Instagram, Messenger From Facebook, WhatsApp and other services; and Facebook Reality Labs, encompassing augmented and virtual reality related hardware, software and content. The company expects its investment in Facebook Reality Labs—the start of its efforts to build out the metaverse—to slash its operating profit in 2021 by approximately $10 billion. Facebook’s Commerce & Ads IP Tool Is Now Brand Rights Protection

Earnings Reports

Analysts Shrug Off Facebook's Bad Press but Q4 Ad Concerns Linger

The leaked internal documents were barely mentioned on the company's earnings call

David Cohen

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