Facebook (NASDAQ: FB) CEO Mark Zuckerberg did not pay tribute to the company’s recent earnings call.
‘I do want to emphasize that we are increasingly seeing appeal (NASDAQ: AAPL) as one of our biggest competitors, ”said the Facebook head.
It is rare for company executives to talk about competitors in such a direct way, especially about earnings calls, because management usually seeks to diminish prospective competition and generally does not mention competitors by name.
This is not the first time that Apple and Facebook have overshadowed each other. Referring to Facebook’s use of tracking tools, Apple CEO Tim Cook called such companies “completely out of control” in 2018 and responded to Zuckerberg’s recent call by saying, “Technology does not need large amounts of personal data.” to succeed, another reference to Facebook.
The two companies have been arguing over privacy issues for a long time, but the interests will soon be much higher with billions of dollars now being fought in this battle.
Image source: Facebook.
Uncertainty ahead for Facebook
Facebook destroyed analysts’ calculations in its fourth quarter report, but the share price continued to fall on the report as management warned of ‘significant uncertainty ahead’, mainly due to ad target winds linked to Apple’s implementation of iOS 14, its new mobile operating software.
iOS 14 includes a number of changes designed to increase user privacy and control over their data. Apps like Facebook will now have to ask users for permission to locate it or to use the device’s ad identifier, which allows the type of ad targeting that is a central part of Facebook’s advertising product.
For Facebook, this change brings with it an unusual degree of uncertainty in its business. And it has repeatedly warned millions of advertisers about the disruptions that iOS 14 is likely to cause. On the earnings call, Zuckerberg blamed Apple:
Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to give their own preference. This affects the growth of millions of businesses around the world, including with the upcoming iOS 14 changes, many small businesses will no longer be able to reach their customers with targeted advertising. Apple may say they do it to help people, but the movements clearly track their competing interests.
Regarding the removal of ad targeting tools, Sheryl Sandberg, chief operating officer, added: “Small businesses are really worried because they are worried that they will not be able to buy effective ads. If all personalized ads disappear, small businesses will see a 60 percent reduction in website sales. ‘
Small businesses make up the bulk of Facebook’s 10 million advertisers, generating the vast majority of the company’s revenue, and businesses are clearly concerned about the changes.
In an interview last week, Dee Deng, CEO of Right Hook Digital, a digital advertising agency in Australia, compared the threat to what small businesses faced only with the COVID-19 pandemic, saying: ‘There are so many similarities between this and [COVID-19]. A new phenomenon, an uncertain future, people are scared and spend their spending like a kidney. ‘ He also told me that he expects more inexperienced advertisers to be expelled from Facebook as the economy changes, and says the policy could even lead to weaker businesses failing. some cases.
Facebook’s worst – case scenario of a 60% drop in advertising spend would be disruptive or even catastrophic for many of the platform – dependent businesses. The company is now hearing the problems and responding accordingly.
Apple blames
For Facebook, which is often called a monopoly itself, Apple serves as a useful foil. The social media giant often introduces itself as a hero of small businesses and offers free and paid tools that millions of small businesses depend on, and Sandberg shares success stories of small businesses on Facebook with every earnings call.
Putting themselves on the side of small businesses is a smart strategy for a business that more recently has been at the center of controversy and antitrust inquiries, as small businesses are crucial to the economy and it is good politics to claim that they on their side.
Based on Apple’s narration of this saga, Facebook violates users’ privacy without their permission, but according to Facebook, this strategy is in the best interests of millions of small businesses. The company also says that users prefer ads that are relevant to them.
By blaming Apple, the company is also portraying itself as a victim of an even bigger technology giant harming Facebook to favor its own apps like iMessage. Apple is also the subject of an antitrust investigation, especially regarding the relationship with apps, so that’s a smart argument for Facebook to make.
What it means for Facebook investors
It’s hard to doubt Facebook’s affairs after the quarter it just reported. Revenue rose 33% year-over-year to $ 28.1 billion, and operating income rose 44% to $ 12.8 billion, yielding a fat operating margin of 46%.
However, the company has a number of risks ahead, including the potential for increased regulation and the threat of another setback such as the advertiser’s boycott last year, but management seems most concerned about the consequences of iOS 14.
The good news is that Facebook’s leadership is unlikely to have a major impact on the deployment, and even calls for accelerated growth during the first half of the year, as it faces the worst pandemic. However, it expected slower growth in the second half of the year and expects the break for iOS 14 to begin by the end of the first quarter.
Investors should also remember that Facebook used to be agile when it needed to adapt, whether in the early days of the company it switched to mobile devices as a stock exchange, or changes it made in response to Russian hacking of the 2016 election and the Cambridge Analytica scandal. Facebook will certainly not stand still this time either, as it will adjust its algorithms and continue to expand new features such as e-commerce.
In general, investors deserve attention to the issue, but this is not a reason to sell, especially not in light of the fixed value in the stock. Watch the rollout of iOS 14 in the coming months, as tensions with Apple are only going to heat up from here.