- Snap and Alphabet posted lackluster first quarters as they felt the pinch from Apple's recent privacy update.
- Facebook's Meta also reported slower growth as it battles the privacy change's impact on ad sales.
- Digital ad businesses have also been affected by the Ukraine conflict, supply chain disruptions, and the impact of inflation.
Google owner Alphabet, Snapchat parent Snap, and Facebook parent Meta posted lackluster first-quarter results as the effect of a privacy change from Apple continues to squeeze big tech.
By one count, Apple's privacy changes are expected to dent Meta, Google's YouTube, Snap, and Twitter's revenue by almost $16 billion in total this year, according to analysis from data management company Lotame, which was shared exclusively with Insider earlier this month.
Introduced in April 2021 and known as App Tracking Transparency, Apple's update forced app developers to ask permission from users before being able to track them across other apps and websites. With the majority of users opting not to be tracked, tech platforms and advertisers have less visibility over the exact audiences they are targeting and whether their ad campaigns are working.
Meta was expected to feel the biggest brunt of the changes and already signaled last year that it would create a headwind "on the order of $10 billion" to its business in 2022. Meta posted just around a 7% lift in ad revenue this quarter versus the year-ago quarter, fulfilling analysts' predictions that it would post its slowest pace of annual growth since going public a decade go, The Wall Street Journal reported.
Meta's executives outlined a three-tier plan to mitigate the effects of Apple's privacy clampdown. In the near term, it's working with large and small advertisers to use its Conversion API to create a direct connection with Meta. The second step is promoting ad units that spur actions on Facebook itself. Long term, Meta plans to develop artificial intelligence and machine learning to let advertisers target people with less personalized data.
Still, the company has felt the hit from multiple directions with Apple's update. Social apps have tended to have the lowest consumer opt-in rates for ad tracking. With less tracking data available from third-party sources, it's still harder for Meta to reach specific audiences and assess how effective its ads were. Meta's advertiser base is also largely made up of smaller advertisers who are more reliant on targeting and precise measurement to acquire customers, versus larger advertisers who tend to focus more on so-called brand advertising that's aimed at large audiences. What's more, Meta took on a more conservative interpretation of Apple's privacy changes early on.
Reporting earnings earlier this month, Snap CEO Evan Spiegel said the first quarter had been "more challenging than expected," reflecting the ongoing impact of the Apple changes and the inflationary environment for advertisers. The company's revenue grew 38% to $1.06 billion, which fell short of the $1.07 billion analysts had estimated. Snap also reported a wider than expected net loss of $359.6 million.
Alphabet's Google was expected to be more insulated from the changes than some of its competitors. Its search ads business is more reliant on what people type into a search box rather than trackers. It already has a ton of data about the swathes of logged-in users across services like YouTube, Gmail, and Chrome. And it was expected to reap the benefits from advertisers switching from targeting iOS users to directing their ads at Android users.
But even Google didn't escape the pain.
"We continue to experience a headwind from ATT primarily in direct response," said Alphabet CFO Ruth Porat on the company's earnings call Tuesday, referring to ads designed to make users take a specific action, such as clicking through to another website. While overall, Alphabet's revenue met analysts' expectations, YouTube's ad sales fell short.
Twitter, also affected by the Apple update, also posted a slowdown in sales growth. Revenue was up 16% to $1.2 billion in the quarter — missing analysts' estimates who had forecast a 19% lift, according to Yahoo Finance. The company didn't provide any commentary or hold an earnings call in light of the company's pending takeover by Elon Musk.
To be sure, there were other elements at play that made this a miserable quarter for big tech. The invasion of Ukraine led to many businesses suspending their operations in Russia, including advertising to consumers there. And in an inflationary environment with ongoing global supply chain issues, some nervous marketers are reining in their ad spending amid the uncertainty.
Still, while some verticals of advertisers are pulling back, others — like crypto — are leaning in. Plus the US midterm elections are coming up. And while market intelligence firm MAGNA revised down its ad spend growth forecast given the economic and geopolitical uncertainty, the overall US ad market is still expected to grow 11.5% this year.
Apple itself is one big beneficiary of the update, both in reinforcing its position as a privacy-focused brand and the windfall it has brought to its search ads business. Market research firm Omdia forecasts Apple's search ad revenue will grow to $5.5 billion in 2022.
An Apple spokesperson didn't offer a comment for this article. On Tuesday, the company published a white paper it funded, written by Kinshuk Jerath, a business professor in the marketing division at Columbia Business School, which states that "claims that billions of advertising dollars moved from companies like Meta to Apple due to the introduction of ATT are speculative."
TikTok, which has exploded in user growth since the start of the pandemic, is also expected to be a landing spot for advertisers trying out its platform for the first time this year.