Meta: Back from the brink

• Spotify’s losses ballooned to Euro 270m last quarter after it hired too heavily during the pandemic.
• Tech Nation, the UK industry body set up to champion the sector, closed down.
• The Biden administration stopped giving export licences to US companies to export to Huawei.

In the last 12 months a familiar narrative has emerged about Meta, the social media giant founded by Mark Zuckerberg. As one Wall Street analyst put it: it’s a “train wreck”. 

The tech giant lost almost two-thirds of its value in 2022 – far outpacing the overall sector. Apple’s 2021 decision to ban third-party tracking on its iPhones was the biggest blow – but overall ad spending is also down. In the midst of this crisis, Zuckerberg has appeared more interested in pouring billions of dollars into his Metaverse – a digital world which currently looks as if it was designed by Microsoft circa 2008.

Later today, Meta will report its quarterly earnings. While there’s still plenty to worry about, there are some signs that Meta’s ad business might be in (slightly) better shape than was recently thought. 

The good. Apple’s privacy update in 2021 made it possible for iPhone users to opt out of letting apps like Facebook track activity on their devices. Almost two years later, Meta seems finally to be weathering the storm. 

Heavy investment in AI technology has turbocharged Meta’s ad-targeting systems, according to internal documents seen by the WSJ. The company can now do more with less, allowing it to target users by analysing their behaviour on Meta’s own products rather than pulling data from third-party products like iPhones.

One UK-based businessperson who spends significantly on Facebook and Instagram ads said their effectiveness had noticeably increased in the last three months. 

Another said Meta could leverage AI to regain lost ad revenue. “But the key will lie in both improved data attribution or modelling as well as opening up new advertising opportunities,” Andy Willers, Co-Founder of Favoured, a digital marketing agency, told Tortoise. Charlie Terry, a digital marketing executive, agreed that Meta still had a “vast” amount of data at its disposal. 

Facebook’s AI isn’t just helping it in ad tech. AI tools have also helped boost time spent on Reels – the short-form videos shown to Facebook and Instagram users – by up to 20 per cent. 

The bad. Analysts expect Meta to report another drop in profit today as well as an accelerated fall in revenue. The headline numbers are likely to be grim. Operating profit is expected to come in around $7.7 billion – down 39 per cent year on year. 

Even though ad-tech technology has improved, content production and engagement on Meta’s platforms continues to fall, especially among young people. And TikTok – Instagram’s nemesis – still has a cultural pull that Meta can’t match (it remains the most downloaded mobile app worldwide, used by two-thirds of American teens). 

And while Meta’s brutal cull of 11,000 jobs in November may help the company stem costs, macro challenges such as an overall slowdown in ad spending and higher regulatory scrutiny remain.

The unknown. Reality Labs, the business unit responsible for the Metaverse, continues to haemorrhage earnings, with operating losses around $4 billion a quarter. Unless that unit conjures up some magic – and soon – it’s unlikely that many analysts will change their gloomy views on Meta in the long term. No wonder Nick Clegg, Zuckerberg’s ambassador to planet Earth, seemed preoccupied on a recent touchdown in Heathrow.