Facebook’s lucrative ad business drove revenue and profit sharply higher in the opening months of 2021, with the looming threat of Apple’s new ad-targeting rules failing to spoil the party – yet.
Advertising revenue, which accounts for the lion’s share of Facebook’s total revenue, jumped 46% in the first quarter versus the same period in 2020 to hit $25.44bn, fueling a near doubling in profit to $9.5bn as it reaped the benefits of locked-down consumers spending more time online.
A giant question mark dangles ominously over second-quarter growth, however, as Facebook waits with bated breath to find out whether Apple’s pending update signals the last hurrah for a period of turbocharged growth.
Facebook ‘rebuilding’ its adtech
Appraising investors of its financial position, Facebook chief operating officer Sheryl Sandberg sought to dispel concerns around Apple’s moves by insisting the company is working ‘to mitigate the impact of the iOS 14.5 update’, which threatens to undermine the social network’s ability to target users.
Outlining the adaptation strategy, Sandberg said: “We’re rebuilding meaningful elements of our adtech so that our system continues to perform when we have access to less data in the future. It’s also on us to keep making the case that personalized advertising is good for people and businesses, and to better explain how it works so that people realize that personalized ads are privacy-protective.”
In light of these measures, Facebook is confident that it can mitigate the severity of any impacts sufficiently to maintain stable or moderate growth in the second quarter, but fears darker clouds ahead in the second half of the year with the possibility of ‘significant’ declines.
Why it matters
Facebook has been engaged in a bitter war of words with Apple over its requirement for iPhone app developers to overtly ask users permission to collect data for adverts, arguing that the move will undermine the financial viability of smaller companies reliant on personalized ads.
Having met a brick wall in its efforts to cajole Apple into reconsidering, Facebook has been forced to implement contingency measures to protect its advertising revenues.
Casting an eye over the triumphant figures, CCS Insight chief operating officer Martin Garner observed: “[Facebook] was helped by comparison with a weaker quarter this time last year, but was driven this year by strong advertising demand. The number of ad impressions was up 12%, but the price per ad shot up 30% over the year as businesses tried to get their trading levels back up.”
Warning that Facebook must tread carefully to avoid being pigeonholed as the bad guy, Garner continued: “Facebook’s hugely public war with Apple over app tracking transparency (now being introduced with iOS 14.5) showed through in several barbed comments during the earnings call. Facebook needs to be super careful with its messaging here. The company has used its client base of smaller companies – and the way they cannot afford big advertising budgets – as its main argument in pushing back against Apple, to justify collecting people’s data to enable personalized ads. At the same time, its own prices have risen 30% for those companies.”
OK, anything else?
Facebook has reaped the rewards of a pandemic pivot towards online shopping, with over a million Facebook Shops now active, bringing in over 250 million visitors and 1 billion people to its Marketplace.
Facebook senses an opportunity to monetize this shift by charging for related advertising rather than charge transaction fees for sellers.
Outlining the story so far, Sandberg said: “We’ve made some good progress, but we recognize that getting to a really seamless transaction experience is going to take work on our side.”
The social network has also set itself the task of streamlining the process of making it easier for users to create and sell content within its apps, accelerating the growth of user-generated content.