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Zacks Equity Research June 22, 2022
AAPL TWTR GOOGL META
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Meta Platforms (META Free Report) has recently announced that the company has reached a settlement with the U.S. Department of Housing and Urban Development (“HUD”) that will change the way the company delivers housing ads to U.S. residents.
Meta collaborated with the HUD for more than a year to develop a machine learning technology that will implement a new system called the variance reduction method to accurately reflect the targeted audience and rein in privacy breaches.
While the recent changes are being targeted only toward housing ads, the new ad-targeting method will be used for employment and credit purposes later on. Meta claims that discrimination in housing, employment and credit has been a grave issue in U.S. history and the company’s new ad-targeting policies are trying to mitigate the same.
Meta has recently committed itself to addressing various claims raised by civil right groups, policy makers and regulators regarding how the company’s ad system delivers certain personalized ads and mishandles personal data. These issues have raised questions about how ethically Meta protects its users’ personal data and have negatively impacted the company’s goodwill.
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
Meta’s Ad Business model was designed by the recently retired COO, Sheryl Sandberg, and became the company’s sole revenue source for an extensiveperiod of time.
However, as Meta rapidly surged ahead, Sandberg and founder Mark Zuckerberg had to face criticism for its failure to rein in large-scale misinformation, hate speech and privacy breaches. This made Meta face a lot of legal issues globally, costing them a significant amount of money. The negative goodwill also hurt Meta’s share prices.
Further down the line, Meta’s ad revenues have faced a serious blow as the company’s social media platforms — Facebook and Instagram — have been banned in Russia. Meta faced this threat along with another social media peer — Twitter (TWTR Free Report) .
Negative sentiments among investors after the ban and macro-economic turmoil also hampered Twitter’s stock prices along with Meta’s, reflecting a major downfall for social media companies.
The recent war has led to an increase in inflation globally, which directly impacted advertisement budget of enterprises. This will impact revenues of ad-driven internet stocks like Meta and Alphabet (GOOGL Free Report) . This, in turn, will impact their stock prices.
Shares of Meta have tumbled 52.8% in the year-to-date period compared with the Zacks Internet – Software industry and Zacks Computer and Technology sector’s declines of 53.3% and 30.6%, respectively.
Alphabet shares have lost 22.7% in the year-to-date period compared with the Zacks Internet – Services industry’s decline of 25.1%.
Adding fuel to the fire is Apple’s (AAPL Free Report) iOS changes and engagement-related changes.
Apple’s iOS changes have made ad targeting difficult for Meta and will hurt advertising revenue growth further.
Meta expects these trends to continue for the entirety of 2022. As a result, Meta is tepid regarding its revenue growth in the short term.
In order to address these challenges, Meta is investing heavily in AI to make a more advanced business model that will drive better recommendations for people in new trending formats like Reels and generate higher returns for advertisers while protecting users’ privacy.
As Meta is addressing the changing ad landscapes by concentrating more on video monetization, it is also evolving its ad revenues to do more with less data and invest heavily in AI and machine learning to support ad infrastructure.
The recent settlement with HUD is addressing Meta’s new ad revenue strategy, which the company believes will aid its long-term growth and separate its ad business model from its peers.
Meta currently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apple Inc. (AAPL) – free report >>
Twitter, Inc. (TWTR) – free report >>
Alphabet Inc. (GOOGL) – free report >>
Meta Platforms, Inc. (META) – free report >>
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