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The Silver Lining for Facebook in Apple's iOS Changes

By Demitri Kalogeropoulos – Oct 30, 2021 at 10:45AM

Key Points

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The advertising business took a modest hit in Q3.

The management team at Facebook (META -1.19%) -- soon to be known as Meta -- was right about predicting a major headwind from the changes Apple (AAPL 2.44%) recently made to its mobile operating system. The social-media giant's advertising revenue declined in the fiscal third quarter as millions of users chose to opt out of tracking services, making the platform less effective for marketers.

But Facebook is doing a good job working around these issues and finding other areas that are being lifted by the changes. Let's look at some of the main reasons why Apple's new privacy focus won't derail Facebook's growth goals in 2021 or beyond.

A person looking at their phone while working at a laptop.

Image source: Getty Images.

User growth

A drop in advertising effectiveness doesn't hurt as much when growth is strong, and Facebook excels here. Daily active users jumped to 1.93 billion in Q3 from 1.82 billion a year earlier. The company now counts 2.8 billion people using at least one of its services (Facebook, Instagram, Messenger, and WhatsApp) in a day -- up from 2.5 billion last year.

That incredible engagement helped protect advertising revenue even though Facebook endured weaker ad effectiveness and bigger struggles with ad tracking, thanks to Apple's platform changes. Average revenue per user held steady worldwide at about $10 and only declined slightly in the U.S. market, down to $52.34 from $53.01 in the previous quarter.

Making the best of a bad situation

The Apple iOS changes are also helping spur Facebook to make a bigger push into its own e-commerce solutions. The Marketplace service is a small step in that direction, but CEO Mark Zuckerberg and his team believe they'll have a much bigger platform over time -- with a major step forward coming this holiday season.

"Building a full-fledged commerce platform is a multiyear journey," Zuckerberg said in a conference call with Wall Street analysts. The Shops platform, which allows direct checkout on Facebook or Instagram, is getting new functionality and expanded promotions in Q4, which should help advertisers offset some of Apple's tracking changes.

Finishing strong

No doubt, Facebook shareholders would prefer that the company didn't have to endure the challenges from Apple's new privacy posture. Its initiatives won't solve them entirely, companies might continue looking toward other platforms, and advertising growth might be slower over the next few quarters. 

But so far, the business isn't seeing much of an earnings pinch. Facebook's efforts have kept the financial impact to a modest level in the latest quarter. And the company is addressing the weakness. "While we and our advertisers will continue to feel the effect of these [iOS] changes," COO Sheryl Sandberg said, "we will continue working hard to mitigate them." 

Meanwhile, as people spend more time on Instagram and the News Feed, it's getting easier for Facebook to make the argument that most advertisers need to have a presence on its apps. And so despite recent negative headlines in the news, Facebook still has a long runway for expansion ahead in 2022 and beyond. That means the digital-advertising industry is as attractive as ever for the social-media leader, even after Apple just shook it up.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Demitri Kalogeropoulos owns shares of Apple and Facebook. The Motley Fool owns shares of and recommends Apple and Facebook. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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