Apple’s vision of a more private Web isn’t necessarily more profitable for Internet businesses that rely on advertising revenue.
That lesson was clear on Wednesday in a earnings report from Meta, the company that Mark Zuckerberg founded as Facebook. Meta said privacy features introduced by Apple last year could cost Zuckerberg’s company $10 billion in lost revenue this year.
The news, along with higher spending as Meta tries to focus on the new idea of a metaverse, sent Meta’s stock price plunge more than 26 percent on Thursday morning. Zuckerberg said on Wednesday that Apple’s changes and new privacy rules in Europe “represent a clear trend where less data is available to deliver personalized advertising.”
Meta’s warning and the stock’s sharp price were a reminder that Apple, even among tech giants, has extraordinary sway over its control of the iPhone. And the tech industry got a clear message that a long-planned shift in how people’s information can be used online had a dramatic impact on Madison Avenue and Internet companies that have spent years building businesses around selling ads.
“People can’t really be targeted like they used to be,” said Eric Seufert, a media strategist and author of Mobile Development Memo, a blog about mobile advertising. “That breaks the model. It’s not just an inconvenience that can be solved with a few tweaks. It requires rebuilding the foundation of the company.”
Other internet companies that rely on advertisements also felt the tremors. But smaller outfits seem to have been more agile than Meta in their response to Apple’s changes.
Shares in Snap, which reported its fourth-quarter results Thursday afternoon, fell about 17 percent earlier in the day. But prices rebounded in after-hours trading after the company said it had made its first profit. Twitter and Pinterest share prices also fell after Meta’s earnings report, but rebounded in after-hours trading Thursday after Pinterest also reported better-than-expected gains.
Apple’s changes have far-reaching implications that could hurt consumers’ wallets, Mr Seufert said, although most consumers choose not to be followed. While Meta and other major media companies have developed new methods of targeting people with ads, some smaller brands, whose ads can no longer reach new customers, have found another solution to the problem: raising prices.
Apple made significant changes to the privacy settings of its mobile operating system last year, allowing iPhone users to… choose whether advertisers can follow them† Since Apple introduced the feature, a vast majority of iPhone users have chosen to block tracking.
Only 24 percent of iPhone users worldwide have agreed to be tracked by advertisers data published in December by the analytics firm Flurry. That means a large number of iPhone users are avoiding the personal tracking that advertisers prefer.
It’s been a startling shift for advertisers, who have tracked people online for years to determine how many sales their customers were making. Advertisers also rely on tracking to uncover products that consumers have viewed, but haven’t yet purchased, to remind them that it may be time to buy. But for privacy activists, the change is a welcome anti-surveillance check that puts power back in the hands of everyday technology users.
“We believe the impact of iOS in general will be a headwind for our business in 2022,” said Dave Wehner, Meta’s chief financial officer, during a conversation with analysts on Wednesday. “It’s on the order of $10 billion, so it’s quite a headwind for our business.”
Google has also taken steps that are disrupting the advertising industry. Last month, it announced a proposal on how Chrome, the world’s most widely used web browser, will eventually… eliminate traditional tracking mechanisms for displaying advertisements. It introduced a new system, Topics, that would inform advertisers about a user’s areas of interest — such as “fitness” or “cars and vehicles” — based on the last three weeks of the user’s browsing history.
Meta’s estimated loss due to these limits is similar to what the company loses to the metaverse. Meta said it was the hub of the metaverse — which in theory could help it get out of Apple’s influence — ate its profits. The company sees the metaverse as the next generation of the internet, in which people will share virtual experiences. It lost more than $10 billion in 2021 when it built the virtual reality glasses and smart glasses that allow users to access the metaverse.
Although Meta said revenue in the three months ended December increased 20 percent to $33.7 billion, compared to the same period a year earlier, the company’s quarterly profit fell 8 percent to $10.3 billion.
Mr. Wehner added that Apple’s iOS changes boosted Google’s advertising business, which does not rely on Apple for advertising data.
Snap, the maker of the Snapchat app and the augmented reality glasses Spectacles, said in its October third quarter earnings report that Apple’s privacy changes had an unexpected impact on its business. But the company is adapting, Snap said in its fourth-quarter earnings report Thursday, and the biggest impact of Apple’s change may be behind it.
“We’re making solid progress,” said Jeremi Gorman, Snap’s Chief Business Officer. The company offers its own metrics to advertisers to measure the impact of their ads, and those tools are now used by more than 75 percent of its direct-response advertisers, Ms. Gorman said.
In its earnings report, Snap said it had exceeded analyst expectations for revenue and user growth. Snap’s revenue in the last three months of 2021 was $1.3 billion, up 42 percent from the same period a year ago. Daily active users grew to 319 million, a 20 percent increase. Operating profit was $22.5 million.
Snap’s stock price rebounded after the news, rocketing more than 50 percent in after-hours trading on Thursday.
In the final three months of the year, Pinterest’s revenue soared to $847 million, up 20 percent from the same period a year ago, the company said Thursday. Earnings were $175 million, down 16 percent from 2020. Pinterest’s stock price was up 29 percent in after-hours trading.
In the past, Twitter has said that Apple’s privacy push caused minimal disruption to its business, as many of its ads came from brand awareness campaigns and major events, such as the Olympics, rather than targeted ads. Twitter will report its fourth quarter results on February 10.
But Apple, who reported his profit fourth quarter indicated last week that privacy was lucrative. Despite supply chain disruptions, Apple said iPhone sales totaled $71.6 billion, up 9 percent from a year earlier. The smartphone maker reported an 11 percent increase in sales and a 20 percent increase in profits.
Apple has made privacy a major part of its marketing for the iPhone and other products, allowing customers to opt out of tracking and offering steps to make tracking more difficult in the browser, Safari. But Apple has continued to allow apps like Facebook to… track aggregated usersas long as they do not attempt to personally identify users.
Last year, Apple CEO Timothy D. Cook, who made his company’s message clear, said the advertising industry had become an ecosystem of “trackers and hucksters who just want to make a quick buck.”
Erin Griffith reporting contributed.