Meta Platform (NASDAQ: FB) is having a tough year. Disruptions to Apple’s supply chain and privacy restrictions have been hampering the capacity of the company to offer tailored advertising.
Meta’s marketing expenditures are being squeezed by rising digital advertising inventory. The Russian invasion of Ukraine also increased unease, reducing advertising expenditures.
The headwinds that will be discussed in greater detail below have played a meaningful part in bringing down Meta’s stock price by 50% off its highs in 2021. More importantly, these factors hurt revenue growth.
Apple’s privacy policies have been updated.
A new privacy policy from Apple allows consumers to opt-in to accept monitoring across all of the company’s applications. Data collection on Meta Platform’s 2.9 billion daily active users has become more difficult because of this new regulation.
For Meta’s commercial partners, this data is used to offer targeted advertising. Marketers cherish this information because it helps them save money on advertising. One possible explanation for Meta’s recent growth from $56 billion to $118 billion in revenue is the improved return on advertising.
It’s hardly probable that a fan of the National Football League in Texas will ever attend a yoga session in San Francisco. Similarly, wouldn’t the Dallas Cowboys want to get this person to come to a game or maybe attempt to sell them a season ticket membership to the football stadium? To put it another way, data provides marketers with a way to identify clients who are most likely to purchase their items.
If Meta can’t discover a solution to these modifications that limit its capacity to target consumers, advertisers’ demand for Meta will likely diminish.
Disruptions in the supply chain
The coronavirus pandemic has resulted in extensive supply chain disruptions as a side effect. Consumers are now more inclined to purchase commodities rather than services. Meanwhile, COVID-19 outbreaks, which keep employees home for days or weeks, have limited production and transportation. Because of this, many have noticed that their preferred things are being sold out more often.
For businesses that can barely keep up with demand for their goods, advertising costs are reduced. In addition, you don’t want to disappoint consumers who show up to your shop to discover that the item is already sold out. As a result, the number of units that you may make and sell in a given month rises due to less advertising.
An increasing amount of available digital marketing space
Over the years, digital advertising has become more popular than non-digital advertising. Sixty-four percent of the $763 million spent by worldwide marketers in 2021 was spent on digital media.
This was an increase from 52.1% in 2019. As a consequence, the business is seeing an influx of new participants. When it comes to advertising, for example, Amazon has a successful revenue model. Ad-supported versions of Disney’s famous streaming service and Netflix’s have already been revealed by these two companies, who are following suit.
In the face of an explosion in digital ad inventory, Meta Platform may lose out on ad spending. In addition, the law of supply and demand states that a rise in the supply of a commodity tends to reduce its price. As a result, Meta’s revenue per ad might be affected.
Invasion by the Russians of Ukraine
Many individuals in this area are worried about greater violence due to the Russian invasion of Ukraine. Businesses in Russia and Ukraine are likely to slash their advertising budgets due to the crisis in Ukraine and Russia.
Meta has also stopped allowing Russian advertisers worldwide as part of penalties, and Russia has prohibited access to Facebook, resulting in a further decrease in income and advertising demand. Consumption in neighboring nations, in a more pessimistic scenario, might also be reduced until Russia’s aggressiveness against its neighbors is clarified.
Meta’s stock may have already taken into account the negative factors.
Investors should not be alarmed and should not divest themselves of Meta Platform’ shares. They should only be keeping an eye on the trends carefully at this time. Meta’s price-to-earnings and price-to-free cash flow ratios are 14.5 and 13.6, respectively. These challenges may have already been included in Meta’s share price, as seen by the stock’s lowest value in years.
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