The company may finally be getting better at tracking and measuring ads.
Meta Platforms (META 3.01%) had a terrible year. The parent company of Facebook, Instagram, WhatsApp, and Messenger’s ad revenue was hurt by a weak macroeconomic environment and changes to how ads are tracked and measured on Apple’s mobile operating system.
The stock was hurt badly by this headwind, and shares of the tech company fell by 65% last year. But The Wall Street Journal said on Friday that Meta’s business might be showing signs of improvement, which could be a good thing for the stock.
Here are some reasons why Meta’s business and maybe even its stock could do well in 2023.
Meta’s nightmare 2022
It’s not a big surprise that Meta’s stock fell last year. The bad news started early in 2022 when Meta reported its fourth-quarter 2021 results and said that its first-quarter revenue growth would slow dramatically because of Apple’s iOS changes, a weak macroeconomic environment, and a shift of user engagement within the company’s apps to its TikTok-like Reels format, which was making less money than its more mature formats.
Most of these trends stayed the same in 2022, even though revenue growth slowed down a lot in Q1 and turned negative by Q2. Year-over-year revenue growth kept going down in Q3, and management said it expected year-over-year revenue to go down between 3% and 11% in the fourth quarter. The middle of this range would be worse than the company’s 4% drop in revenue in Q3.
There may be a change coming.
Even though Meta’s performance was terrible last year, the company’s management said more than once that it was sure things would get better in the long run. In particular, the social media company thought it could come up with ways to make its ad tracking and measurement less dependent on what Apple’s mobile operating system could do. Meta also said throughout the year that its Reels format, which may be a disadvantage right now, would become an advantage as the company got better at making money.
Friday’s WSJ said that Meta has been making progress in these areas. The WSJ says that investments in AI tools to improve ad targeting and forecasting and a switch to ad products that depend less on Apple’s mobile operating system are paying off. Jeff Horwitz and Salvador Rodriguez of the WSJ wrote, based on “internal documents” at Meta, that “executives told employees in October that Meta expected to start coming back from Apple’s change as soon as that quarter, which ended Dec. 31.”
Of course, it’s still impossible to know what Meta’s results may be in the fourth quarter. On Feb. 1, the company will tell us how it did in the fourth quarter. It’s important to note that Meta’s third-quarter report came out at the end of October, which is the same month that WSJ said executives told employees about these improvements and almost a month into Q4. So, it’s likely that management tried to put any improvements it saw into its fourth-quarter revenue guidance in a conservative way.
Even though Meta’s results for the fourth quarter of 2022 could be better than expected, the internal documents cited by WSJ do give hope for a possible change in the company’s top-line trend in 2023.