Facebook shares are hurt by Apple’s changes. The concern is likely to be overstated.

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appeal

and

Facebook

may at first glance not look like competitors. Apple’s huge amount of money comes from its successful iPhones, and after all, Facebook makes social networking apps.

But it is opponents, according to Facebook CEO Mark Zuckerberg, who made the remarks during the company’s quarterly conference call in January. He explained that Facebook (ticker: FB) has control over Apple (AAPL)’s control over the iOS software that powers the mobile devices.

In addition to competing in messaging apps – Apple has iMessage, and Facebook makes WhatsApp and Messenger – Facebook has also embarked on an upcoming change to iOS that will make it harder for Facebook to target ads. In theory, at least, that would make them less valuable.

This is called the ID for advertisers, or IDFA, and the technology allows app developers like Facebook to track people’s activities. People should sign up now if they do not want their activities tracked down. Apple plans to change that in the coming weeks, to avoid tracking, unless people turn to it, and Facebook does not like it much.

The changes to iOS had to be implemented last year, but Apple postponed them until 2021. Among other things, the potential impact of IDFA on Facebook’s share price, which has fallen by 2.3% over the past six months, compared to the

S&P 500

index’s profit of 15%.

Atlantic Cities analyst James Cordwell wrote in a client document on Monday that investors have already taken into account the IDFA change in the share price, and that there is still enough room to expand the company. Cordwell acknowledged that in the short term, there will be uncertainty for Facebook and some damage to revenue. In the long run, however, Apple’s change in IDFA could strengthen Facebook’s business.

The likely decline in target / measurement over the ‘open’ iOS / App Store ecosystem will increase the attractiveness of ‘closed’ content platforms for advertisers and app developers, with Facebook in the best position to capitalize on this, given its investments in stores and (to a lesser extent) Instant Games, ‘the analyst wrote.

It is also possible that advertisers may simply accept a lower return on advertising dollars, as it is difficult for many major brands and advertisers with direct response to stop spending altogether, Cordwell wrote. Apple’s changes will still allow Facebook to collect and use data on members’ behavior within the app’s boundaries, indicating that the company will still have useful profiles of its users that can be applied to advertising targets.

Cordwell is also positive about Facebook for other reasons. In the note, he writes that the company has increased its active advertising base by more than 25% in fiscal 2020, while saying that its Shops function, which provides e-commerce capability, is likely to generate more revenue in the second half of this year. . Meanwhile, Instagram’s Reels feature gives the company exposure to short-form videos made popular by services like Tik Tok, he said. And finally, he said, the company’s virtual and augmented reality efforts are often given limited credit, despite the success of the company’s Quest headsets.

Cordwell rates Facebook shares overweight and has a target of $ 345 for the share price. Facebook shares have risen 34% in the past year as the S&P 500 index rose 17%. Facebook closed the regular session Monday with 0.5% to $ 260.33.

Write to Max A. Cherney at [email protected]