Facebook feels $10 Billion sting from Apple’s privacy push

Facebook’s parent company served up a stark sign of how Apple Inc.’s new ad-privacy policy is roiling the digital-advertising world.

Meta Platforms Inc. closed down more than 26% in Thursday trading—a $230 billion-plus loss in market capitalization—after Chief Financial Officer David Wehner on Wednesday said the company expects the Apple policy to cost it more than $10 billion in lost sales for 2022, equivalent to about 8% of its total revenue last year.

"It’s a pretty significant headwind," Mr. Wehner said on a call with analysts.

The share decline represented the biggest one-day retreat in value in U.S. history.

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Rival social-media platform Snap Inc., which retreated more than 23% Thursday amid concerns over the impact Apple’s policy is having on the online ad market, cheered investors after the closing bell with its first-ever quarterly profit. The company also signaled progress in navigating the Apple policy changes. The stock rallied more than 50% in after-hours trading on the results.

Apple introduced the changes last April, altering its iPhone software to require apps to ask users whether they want to be tracked. The move limited the ability to gather data through apps that is used to target digital ads and drove advertisers to alter spending patterns. Meta had said previously that the Apple move was hurting its ad business, but it hadn’t given an estimate for how much.

Meta "was impacted significantly and it’s going to be a continuous problem," Daniel Newman, a principal analyst at Futurum Research, said Wednesday.

Meta raised other concerns for investors with its earnings, including the loss of about a million daily users globally in the last quarter, and its sales outlook for the current quarter fell short of Wall Street expectations. The company expects expenses to jump around $20 billion or more this year as it pursues Chief Executive Mark Zuckerberg’s bet on the metaverse, the online virtual world some see as the next evolution of the internet.

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Booming digital ad spending has been a boon for Mr. Zuckerberg’s company. Facebook, as the company was known before its renaming last year to Meta, enjoyed years of strong revenue driven in significant part by its ability to track the behavior of users of apps and websites and enable advertisers to deliver highly targeted ads based on that information. The Apple policy change disrupted that ability, with a large majority of users, according to some measurements, opting not to be tracked. Meta says that policy has made ad targeting more difficult and measuring the impact of placements harder.

Apple’s move has had reach beyond social-media companies. Videogame company Zynga Inc., which specializes in smartphone games like Words With Friends and has its own advertising platform, suffered an earnings hit from the new Apple policy that led its shares to drop sharply last year. The company ended up selling itself to Take-Two Interactive Software Inc. for $11 billion last month.

While there clearly is an impact from Apple’s policy, Brian Wieser, GroupM’s president of business intelligence, said the impact on Meta might not be as great as the company’s executives have suggested. "I’m skeptical that it’s as bad as they’re conveying," he said. The digital ad business remains healthy, he said, pointing to Google parent Alphabet Inc.’s strong earnings this week seemingly largely unaffected by the policy changes.

Twitter Inc., in its most recent earnings report in October, said it expected to be largely unaffected by the Apple policy because it isn’t as reliant on targeted digital ads as some of its rivals.

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Unity Software Inc., a provider of videogame development tools and advertising services, hasn’t been affected by Apple’s privacy rules because it relies on data that tracks players’ in-game behavior as opposed to information affected by changes in the iPhone software, the company’s CEO, John Riccitiello, said in an interview.

Snap on Thursday posted a net profit of $22.6 million in the most recent quarter after sales advanced 42% to $1.3 billion from the year-ago period, beating Wall Street expectations. The company’s Chief Financial Officer Derek Andersen said elements of the company’s advertising business "began to recover from the impact of the iOS platform changes quicker than we anticipated."

Meta’s CFO, Mr. Wehner, said Apple’s policy treats Google differently, suggesting that the difference might reflect a longstanding business relationship between the two companies. "We believe Google’s search ad business could have benefited relative to services like ours that face a different set of restrictions from Apple and given that Apple continues to take billions of dollars a year from Google search ads, the incentive clearly sits for this policy discrepancy to continue."

Google’s flagship search-ad business relies on search terms customers input to reveal what they are interested in, rather than on data collected from app and web tracking.

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Apple didn’t immediately respond to a request for comment. Google declined to comment.

Google said its search and advertising revenue rose 36% and topped $43 billion in the most recent quarter, led by strength in retail-related ad spending, with YouTube advertising up 25% from the year-earlier period. The company didn’t address the Apple situation but previously said the changes to user tracking had a modest impact on YouTube revenue.

Sheryl Sandberg, Meta’s chief operating officer, said on Wednesday’s earnings call that the company was working on ways to measure the impact of the ads it sells and to find ways to show relevant ads without collecting personalized data. "That’s going to take us time."