Meta Stock Drop Biggest in History – Apple App Tracking Transparency a Factor

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Meta Stock Price

BUSINESS – Meta, the parent company for Facebook saw its stock value plunge by 26 per cent on Thursday on what investors saw as disappointing earning results. The single day drop in the stock price erased about US$251.3 billion in market value.

This single day drop in Meta Platforms Inc.’s stock value now ranks as the worst-ever single day stock drop in stock-market history.

So what happened?

A big part of the drop in advertising came about due to changes made by Apple. Apple had made changes to its privacy policy. The move, comes via something called called App Tracking Transparency, or ATT.

App Tracking Transparency will require apps to get the user’s permission before tracking their data across apps or websites owned by other companies. Under Settings, users will be able to see which apps have requested permission to track, and make changes as they see fit.

A significant proportion of users are very likely to say no. Today, developers and advertisers use the IDFA to target mobile ads and measure how effective they are. Apple’s move forces app makers to ask a user for their permission before an app can collect a unique identifier on every iOS device called an identifier for advertisers, or IDFA.

Apple has consistently said that the change to its platform, which the company announced last June, is about privacy.

“Privacy means peace of mind, it means security, and it means you are in the driver’s seat when it comes to your own data,” says Craig Federighi, Apple’s senior vice president of Software Engineering. “Our goal is to create technology that keeps people’s information safe and protected. We believe privacy is a fundamental human right, and our teams work every day to embed it in everything we make.”

“Apple has been able to stake out the moral high ground, I think, claiming that they’re focused on user privacy. But in reality, they really surrendered app discovery to and merchandising to Facebook and Google. What I see them doing is trying to get that control back,” said Brian Bowman, CEO of Consumer Acquisition, a digital advertising firm focusing on user acquisition.

Meta has seen 1.9 million people leave Facebook. Competition has jumped up with younger users going to TikTok.

“We had a solid quarter as people turned to our products to stay connected and businesses continued to use our services to grow,” Mark Zuckerberg, Meta founder and CEO told shareholders on February 3rd. “I’m encouraged by the progress we made this past year in a number of important growth areas like Reels, commerce, and virtual reality, and we’ll continue investing in these and other key priorities in 2022 as we work towards building the metaverse.”

On January 27th, Apple posted its fourth quarter results.

Apple today announced financial results for its fiscal 2022 first quarter ended December 25, 2021. The Company posted an all-time revenue record of $123.9 billion, up 11 percent year over year, and quarterly earnings per diluted share of $2.10.
“This quarter’s record results were made possible by our most innovative lineup of products and services ever,” said Tim Cook, Apple’s CEO. “We are gratified to see the response from customers around the world at a time when staying connected has never been more important. We are doing all we can to help build a better world — making progress toward our goal of becoming carbon neutral across our supply chain and products by 2030, and pushing forward with our work in education and racial equity and justice.”

Mark Zuckerberg Message to Shareholders

“This was a solid quarter for our products and business. It was also an important one for our company. In October, we announced that “Meta” would be our new name and laid out our vision for the metaverse. When we shared our plans at Connect, I said this is not something we’re going to do on our own. The metaverse will be built by creators and developers, it will be interoperable, and it will touch many different parts of the economy. In the months since, it’s been exciting to see lots of other companies share their own plans for the metaverse and how their experiences and products might show up too. And I look forward to partnering with many of them as we all work to bring this to life together.

If last year was about putting a stake in the ground for where we’re heading, this year is going to be about executing. Today I’m going to discuss our seven major investment priorities for 2022: and they’re Reels, community messaging, commerce, ads, privacy, AI, and of course the metaverse. These are the areas that we’re putting a lot more talent and budget towards.

“Before I get to that, I want to briefly touch on our Q4 results. We shipped products, our community continued to grow, and businesses of all sizes turned to us to help them reach people. But there are two things that I want to call out that are having an impact on our business.

“The first is competition. People have a lot of choices for how they want to spend their time and apps like TikTok are growing very quickly. And this is why our focus on Reels is so important over the long-term. As is our work to make sure our apps are the best services out there for young adults, which I spoke about on our last call.

“The second area, and related to this, is that we’re in the middle of a transition on our own services towards short-form video like Reels. So as more activity shifts towards this medium, we’re replacing some time in News Feed and other higher monetizing surfaces. So as a result of both competition and this shift to short-form video as well as our focus on serving young adults over optimizing overall engagement, we’re going to continue to see pressure on impression growth in the near term. Now I’m confident that leaning harder into these trends is the right short-term tradeoff to make in order to get long-term gains. We’ve made these types of transitions before with mobile feed and Stories, where we took on headwinds in the near-term to align with important trends over the long term. And while video has historically been slower to monetize, we believe that over time short-form video is going to monetize more like feed or Stories than like Watch – so I’m optimistic that we’ll get to where we need to be with Reels too.

“Ultimately, our continued success relies on building products that people find valuable and enjoy using. And in a competitive marketplace, we’re focused on understanding the areas we need to deliver on for people and executing against our strategy.

“I want to discuss our investment priorities for 2022.

“First is Reels. It’s clear short-form video will be an increasing part of how people consume content moving forward, and Reels is now our fastest growing content format by far. It’s already the biggest contributor to engagement growth on Instagram and it’s growing very quickly on FB too. As we continue to improve tools for creators, ranking for the people watching, and as we roll out the product everywhere across the world, we expect that this will continue growing quickly. So looking ahead, we’re investing in simplifying video across Instagram, building more great creative and monetization tools for creators, and helping more people discover and interact with relevant Reels.

“The next investment priority is community messaging – which is about chatting with groups of people that you have something in common with, whether that’s a shared community, experience or interest. We already run some of the world’s most popular messaging platforms where people connect 1:1 or in groups with friends, family and colleagues. And we’re seeing people increasingly want to share more things in messages that they would’ve previously maybe posted to feed. I think the popularity of apps like Slack in the workplace, or Discord or Telegram reflects this trend too. So we’re going to help people on WhatsApp better organize their group chats and make it easier to find information for the communities they’re part of – like parent groups or neighborhoods. And we’re also building Community Chats on Facebook and Messenger for real-time conversations within those groups and communities.

“I also want to call out business messaging too, since it’s an area where there’s real momentum. We estimate more than 1 billion users are connecting with a business account across our messaging services every week. And we’re partnering with companies like Uber and Jiomart to help people book a ride or have their groceries delivered right from a chat. And we’re building new tools to make buying online better for people and easier to manage for businesses. And we believe this can be an important business for us in the years to come.

“We’re also making good progress on our broader commerce efforts. We already help a lot of businesses reach new and existing customers with personalized ads, and our commerce tools are an extension of that – it’s a seamless experience for people and businesses to buy and sell through our apps. Our strategy since introducing Shops a year and a half ago has been to make it as easy as possible for people to make a purchase after discovering a new brand or product, without having to switch over to a browser or re-enter their payment info. Sheryl will share more about our progress here, including some of the success we saw over the holidays.

“Next up is ads. With Apple’s iOS changes and new regulation in Europe, there’s a clear trend where less data is available to deliver personalized ads. But people still want to see relevant ads, and businesses still want to reach the right customers. So we’re rebuilding a lot of our ads infrastructure so we can continue to grow and deliver high-quality personalized ads.

“The next two priorities I want to discuss focus on the infrastructure that underpins all our products. First is privacy. We’ve made huge investments in strengthening our approach to privacy, including rebuilding our privacy program and our privacy review process. We made updates to bring greater privacy to our products, including end-to-end encrypted backups and disappearing messages on WhatsApp, and end-to-end encrypted voice and video calling on Messenger. Over the next few years, we’re focused on building out a major privacy infrastructure project that will encode our privacy commitments at a deeper level of our technical foundation to make them more durable and make product development faster in this evolving environment.

“Now onto AI. This is one of the areas where we’ve routinely seen stronger returns on our investments over time than we’ve expected. Advances in AI enable a lot of the experiences I’ve spoken about so far – it enables us to deliver better ads to people while using less data; its core to all of our safety and security work; it’s meaningfully improvedthe relevance of Reels and overall content ranking in general; and it plays a big role in our commerce efforts.

“Artificial intelligence is also going to play a big role in our work to build the metaverse. We just announced our AI Research SuperCluster, which we think will be the world’s fastest supercomputer once it’s complete later this year. This is going to enable new AI models that can learn from trillions of examples and understand hundreds of languages – which will be key for the kinds of experiences that we’re building.

“Looking ahead, we’re focused on further scaling our computing power and transforming our AI infrastructure through advances in foundational research, as well as improvements to data center design, networking, storage, and software.
Now the last investment priority here is the metaverse. We’re focused on the foundational hardware and software that are required to build an immersive, ​​embodied internet that enables better digital social experiences than anything that exists today.

“On the hardware front, we’re seeing real traction with Quest 2. People have spent more than $1B on Quest store content, helping virtual reality developers grow and sustain their business. We had a strong holiday season and Oculus reached the top of the App Store for the first time on Christmas Day in the US. We’re working towards a release of a high-end virtual reality headset later this year and we continue to make progress developing Project Nazare, which is our first fully-augmented reality glasses.

“As for software, Horizon is core to our metaverse vision. This is our social VR world-building experience that we recently opened to people in the US and Canada. And we’ve seen a number of talented creators build worlds like a recording studio where producers collaborate or a relaxing space to meditate. And this year, we plan to launch a version of Horizon on mobile too, that will bring early metaverse experiences to more surfaces beyond VR. So while the deepest and most immersive experience are going to be in virtual reality, you’re also going to be able to access the worlds from your Facebook or Instagram apps as well, and probably more over time. This will enable us to build even richer social experiences where you can connect with friends in the metaverse whether they’re in VR or not.

“We’re also focused on avatars, which will be how you represent yourself in Horizon and across other developers’ experiences in the metaverse. In December, we rolled out our Meta Avatars SDK to all Unity developers on Quest, Rift and Windows-based VR platforms, letting developers bring Meta Avatars to their own VR experiences. We just announced an update that lets you further customize your avatar to better express yourself – and we’re introducing digital clothing too, starting with an NFL partnership so you can cheer on your favorite team. You can use your avatar across Quest, Facebook, Instagram and Messenger. So it serves as another bridge between our 2D social apps and 3D immersive virtual reality experiences. We have a bunch of work ahead of us to make avatars as expressive and high-fidelity as they need to be to fully represent us and help us feel present with one another. But I’m very excited for the advances we’re making here.

“Making meaningful progress across all seven of these areas is going to improve the services we offer today and will help power a more social, intuitive, and entertaining metaverse, where people, businesses and creators can all thrive. This fully realized vision is still a way off, and although the direction is clear, our path ahead is not yet perfectly defined. But I’m pleased with the momentum and progress we’ve made so far and I’m confident these are the right investments to take us forward.

“2022 is the first page of the next chapter for our company. I’m grateful for all the talented teams at Meta and our partners for executing on this important work. And of course for all of you who are on this journey with us”.

Fourth Quarter and Full Year 2021 Financial Highlights

Three Months Ended December 31,

Year-over-
Year %

Change

Year Ended December 31,

Year-over-
Year %

Change

In millions, except percentages and

2021

2020

2021

2020

per share amounts

Total revenue

$           33,671

$           28,072

20%

$        117,929

$          85,965

37%

Total costs and expenses

21,086

15,297

38%

71,176

53,294

34%

Income from operations

$           12,585

$           12,775

(1)%

$          46,753

$          32,671

43%

Operating margin

37%

46%

40%

38%

Provision for income taxes

$             2,417

$             1,836

32%

$            7,914

$            4,034

96%

Effective tax rate

19%

14%

17%

12%

Net income

$           10,285

$           11,219

(8)%

$          39,370

$          29,146

35%

Diluted earnings per share (EPS)

$               3.67

$               3.88

(5)%

$            13.77

$            10.09

36%

Fourth Quarter and Full Year 2021 Operational and Other Financial Highlights

  • Family daily active people (DAP) – DAP was 2.82 billion on average for December 2021, an increase of 8% year-over-year.
  • Family monthly active people (MAP) – MAP was 3.59 billion as of December 31, 2021, an increase of 9% year-over-year.
  • Facebook daily active users (DAUs) – DAUs were 1.93 billion on average for December 2021, an increase of 5% year-over-year.
  • Facebook monthly active users (MAUs) – MAUs were 2.91 billion as of December 31, 2021, an increase of 4% year-over-year.
  • Ad impressions and price per ad – In the fourth quarter of 2021, ad impressions delivered across our Family of Apps increased by 13% year-over-year and the average price per ad increased by 6% year-over-year. For the full year 2021, ad impressions increased by 10% year-over-year and the average price per ad increased by 24% year-over-year.
  • Capital expenditures – Capital expenditures, including principal payments on finance leases, were $5.54 billion and $19.24 billion for the fourth quarter and full year 2021, respectively.
  • Share repurchases – We repurchased $19.18 billion and $44.81 billion of our Class A common stock in the fourth quarter and full year 2021, respectively. As of December 31, 2021, we had $38.79 billion available and authorized for repurchases.
  • Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $48.0 billion as of December 31, 2021.
  • Headcount – Headcount was 71,970 as of December 31, 2021, an increase of 23% year-over-year.

New Financial Reporting Segment Structure and Operating Results

Beginning in the fourth quarter of 2021, we report our financial results based on two reportable segments:

  • Family of Apps (FoA), which includes Facebook, Instagram, Messenger, WhatsApp and other services.
  • Reality Labs (RL), which includes augmented and virtual reality related consumer hardware, software and content.

Segment Information

(In millions)

(Unaudited)

Three Months Ended

Year Ended December 31,

December 31,
2021

September 30,
2021

June 30,
2021

March 31,
2021

December 31,
2020

2021

2020

2019

Revenue:

Advertising

$       32,639

$       28,276

$     28,580

$     25,439

$       27,187

$  114,934

$  84,169

$  69,655

Other revenue

155

176

192

198

168

721

657

541

Family of Apps

32,794

28,452

28,772

25,637

27,355

115,655

84,826

70,196

Reality Labs

877

558

305

534

717

2,274

1,139

501

Total revenue

$       33,671

$       29,010

$     29,077

$     26,171

$       28,072

$  117,929

$  85,965

$  70,697

Income (loss) from operations:

Family of Apps

$       15,889

$       13,054

$     14,799

$     13,205

$       14,874

$  56,946

$  39,294

$  28,489

Reality Labs

(3,304)

(2,631)

(2,432)

(1,827)

(2,099)

(10,193)

(6,623)

(4,503)

Total income from operations

$       12,585

$       10,423

$     12,367

$     11,378

$       12,775

$  46,753

$  32,671

$  23,986

CFO Outlook Commentary

We expect first quarter 2022 total revenue to be in the range of $27-29 billion, which represents 3-11% year-over-year growth. We expect our year-over-year growth in the first quarter to be impacted by headwinds to both impression and price growth.

  • On the impressions side, we expect continued headwinds from both increased competition for people’s time and a shift of engagement within our apps towards video surfaces like Reels, which monetize at lower rates than Feed and Stories.
  • On the pricing side, we expect growth to be negatively impacted by a few factors:
    • First, we will lap a period in which Apple’s iOS changes were not in effect and we anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes.
    • Second, we will lap a period of strong demand in the prior year and we’re hearing from advertisers that macroeconomic challenges like cost inflation and supply chain disruptions are impacting advertiser budgets.
    • Finally, based on current exchange rates, we expect foreign currency to be a headwind to year-over-year growth.

In addition, as previously noted, we also continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations.

We expect 2022 total expenses to be in the range of $90-95 billion, updated from our prior outlook of $91-97 billion. Our anticipated expense growth is driven by investments in technical and product talent and infrastructure-related costs.

We expect 2022 capital expenditures, including principal payments on finance leases, to be in the range of $29-34 billion, unchanged from our prior estimate. Our planned capital expenditures are primarily driven by investments in data centers, servers, network infrastructure, and office facilities. As we discussed previously, this range reflects a significant increase in our artificial intelligence and machine learning investments, which will support a number of areas across our Family of Apps. While our Reality Labs products and services may require more infrastructure capacity in the future, they do not require substantial capacity today and, as a result, are not a significant driver of 2022 capital expenditures.

Absent any changes to U.S. tax law, we expect our full-year 2022 tax rate to be similar to the full-year 2021 rate.

Ticker Symbol Change to META

Meta’s Class A common stock is expected to begin trading on NASDAQ under the ticker symbol ‘META’ in the first half of 2022. This will replace the current ticker symbol ‘FB,’ which has been used since the company’s initial public offering in 2012, and more details on exact timing will be forthcoming. No action is required by our stockholders with respect to the ticker symbol change and it does not affect the rights of our stockholders. Our Class A common stock will continue to be listed on NASDAQ and the CUSIP number will remain unchanged.

Webcast and Conference Call Information

Meta hosted a conference call to discuss the results at 2 p.m. PT / 5 p.m.. The live webcast of Meta’s earnings conference call can be accessed at investor.fb.com, along with the earnings press release, financial tables, and slide presentation. Meta uses the investor.fb.com and about.fb.com/news/ websites as well as Mark Zuckerberg’s Facebook Page (facebook.com/zuck) and Instagram account (instagram.com/zuck) as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Following the call, a replay will be available at the same website. A telephonic replay will be available for one week following the conference call at +1 (402) 977-9140 or +1 (800) 633-8284, conference ID 22013689.

Transcripts of conference calls with publishing equity research analysts held today will also be posted to the investor.fb.com website.