Meta (Facebook’s parent company) has been in the news for multiple reasons in recent times. Its unaudited financial results for the fourth quarter and full year of fiscal 2021 ended December 31. According to the report, Meta’s revenue in the fourth quarter was $33.671 billion, an increase of 20% compared with $28.072 billion in the same period last year. The company’s net profit was $10.285 billion, a decrease of 8% relative to the net profit of $11.219 billion in the same period of last year. For the first time since the second quarter of 2019, Facebook’s net profit is declining. Its net profit should be $10.9 billion. According to Facebook, its first-quarter revenue should be between $27 billion to $29 billion. This is less than the initial market expectation of $30.25 billion.
Chairman and CEO Mark Zuckerberg, COO Sheryl Sandberg, and CFO David Wehner responded after the earnings release Analysts asked questions. Here are the top intense questions and answers regarding Facebook and its business
From Morgan Stanley analyst Brian Nowak
The first question is about the transition of the company’s Reels short video business. The company has also completed the successful transition of other businesses in the past, such as Mobile and Stories. For the Reels short video business, is there anything different from in the past? Or what challenging tasks have appeared in the process, making the transition take longer to complete?
Response from David Weiner
Some of the characteristics of Reels’ transition process are similar to those of other previous businesses. For example, in order to complete the successful transition of the story business, the effective operation of short videos on Instagram and Facebook requires special attention to the improvement of user experience. Let consumers have a comfortable user experience. Over time, we hope that the short video mode can be the same as the story function, and it is more suitable for advertising. We are also confident in the commercialization of this business model. There are still very few ads, which is what we call a downside.
From Morgan Stanley analyst Brian Nowak
The second question is for David. You mentioned that the difficulties encountered in advertising target delivery and performance evaluation will be greater in the first quarter of this year. Is this comparison relative to the same period last year? What signals does the company base its judgment on?
Response from David Weiner
Regarding the issue of iOS 14, Apple’s policy adjustment did have an impact on the company’s revenue in the fourth quarter of last year, and its impact was in line with our expectations. The impact will continue because the company’s performance in the first half of last year has not been affected by the new deal.
Overall, we believe that the policy adjustment of iOS 14 is indeed detrimental to this year’s performance growth, and the total revenue affected is $10 billion, which is a very large number. The affected industries are mainly e-commerce, and the growth rate of this business in the fourth quarter has slowed down significantly. In addition, the game industry has also encountered similar challenges.
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In terms of the impact on the e-commerce business, it is worth noting that Google has previously talked about it. If Apple’s New Deal has a positive impact on its e-commerce business, the restrictions in Apple’s New Deal do have a significant impact on its e-commerce business. However, companies in the industry are affected differently. Apple’s new decree makes it more difficult for mobile application providers to obtain data. Nevertheless, it allows search advertising providers to obtain more third-party data, making their advertising effects more intuitive and conducive to the commercialization of their business.
For service providers that provide advertisements based on mobile applications, the new policy is unfavorable. Apple still earns billions of dollars a year from Google’s advertising business, so this disparity in the industry will continue.
From Goldman Sachs analyst Eric Sheridan:
To follow up on Brian’s question about Reels, can you ask management to talk about the similarities and differences between the Reels business and the business that was in transition? For example, let’s talk about user engagement, profit, advertising price, etc.
Response from Mark Zuckerberg
The user engagement of short videos is still very high. As I said before, one of the fastest-growing sub-businesses of user engagement on Instagram is short videos. It is also the same on Facebook. Regarding the similarities with the previous business, the biggest similarity we have seen is that the short video business is another major content form change that we have experienced. The evolution of the story is still the short video of Reels. In the beginning, we need to adapt to the changes in the form of advertising systems and business operations. The replacement of the old form by the new form will inevitably have a certain adverse impact on revenue growth, but we are not worried.
Speaking of differences, compared to the previous stories and mobile feeds, the Reels team is very strong in execution, and the entire transition process is very fast. At the same time, it should be noted that TikTok is a very large competitor, and it is also growing at a very fast rate. Although we have very fast development, our competitors are also growing rapidly. So back to your question, we are optimistic about the development of Reels, but we still have a lot of work to do.
From Goldman Sachs analyst Eric Sheridan
The second question is for Shirley. At the last earnings meeting, you mentioned that some of the work done by the company will produce results in the first quarter or the first half of this year. Can you talk about the company’s current progress in the advertising business? including advertising targeting and performance measurement?
From Sheryl Sandberg
In terms of mitigating the impact of the iOS New Deal, we previously mentioned two key challenges posed by the New Deal. The first is ad targeting and the other is performance measurement. In terms of targeted delivery, we believe it will take years to rebuild ad optimization systems. To drive performance growth with less available data, we are putting in some efforts. One of our efforts is to invest in automation to make it easier for advertisers to take advantage of it.
For performance evaluation, there are also two key areas affected by Apple’s iOS new policy that need attention. I also mentioned this in the last earnings meeting. The first one is the problem of insufficient reporting. Advertisers are worried that their actual return on investment will be higher than the official report. The changes in Apple’s new policy will hurt small businesses even more.
The second challenge is data latency, because of the new iOS policy, our company, like other advertising platforms, receives less detailed conversion data, and it’s not real-time data. It is also difficult for advertisers to make real-time decisions based on these data. Real-time data is often the most important resource during the holiday season when shopping consumption peaks.