Facebook faces a reckoning as advertisers slash spending and abandon the platform for the first time ever (2024)

Digital ad sellers are having a bad year. But for Facebook parent Meta Platforms, the problem is worse — and it may be one it doesn't recover from.

For the first time in Meta's history as a public company, it reported a year-over-year revenue decline. Mark Zuckerberg himself said the business faces "one of the worst downturns that we've seen in recent history," according to Reuters. The rest of the digital ad sector, made up of Google, Twitter, Snap and others, is also facing a slowdown in growth.

What's different is that Meta is in a perfect storm. As a result, more advertisers are not just increasingly willing to diversify away from Meta, but doing so for the first time. It's a big shift for a company that historically could always count on their dollars, scandal after scandal, as long as their ads performed.

One top exec at a major holding company agency said the economic downturn would affect everyone in the second half but that significantly, Meta would lose share of client spending as well, saying, "This is a first."


The major ad forecasters have cut their overall ad spending outlooks for the year, and other agency execs say Meta, long considered a "must-buy," is now at the top of clients' lists of places to cut.

Analysts, too, say Meta is coming down to Earth after years of explosive growth. Needham analyst Laura Martin earlier in July downgraded Meta's stock from "hold" to "underperform," given its guidance for slower revenue growth and huge investment in its vision for the metaverse. Matthew Bailey, principal analyst at research firm Omdia, forecasts that the company will post 16% growth for all of 2022, down from 37% in 2021.

"We are forecasting that Meta's share of global net online advertising revenue will decline for the first time in 2022," Bailey said.

A Meta spokesman responded with a statement: "We believe our platforms offer businesses the best ways to connect with people, so we're focused on successfully executing on our long-term plans."


Business model, reputation problems

Some of Meta's challenges go to the business model. Facebook has been harder hit than other apps by Apple's privacy update last yearthat dented advertisers' ability to target and measure the effectiveness of their ads. Google, with its core search business, has been more immune to Apple's privacy update. Google has said it also intends to introduce a similar privacy update for Android apps in the coming years.

The reputation damage caused by the 2020 advertiser boycott over Facebook's handling of misinformation and hate speech on the app hasn't gone away. Investors and boards of major Facebook advertisers also are scrutinizing where corporate ad dollars are placed with an eye on compliance with ESG — Environmental, Social and Corporate Governance — criteria.

Lou Paskalis, the former media head for Bank of America and now president of the MMA, a marketing and tech trade association which counts Meta as a member, says other social media companies like Twitter, Pinterest, and Snap do a better job of talking about brand suitability, while Zuckerberg isn't viewed as being as interested in it as his ad leads once were.

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"They're going to be more thoughtful about when they invest because reputational risk now is part of the ecosystem," he added of the marketers and chief investment officers he talks to. "Consumers today shop their values more than ever before. And just like with Black Lives Matter, and other social issues, you can't advertise on platforms that don't try to fix some of the issues that they're well known for."


Meanwhile, Meta's ad leadership has undergone a big transition. With chief operating officer Sheryl Sandberg's imminent departure and the exits of multiple top ad leaders including David Fisher and Carolyn Everson, advertisers are getting used to a new team under Marne Levine, who had a long career outside advertising; and Nicola Mendelsohn, whose Facebook advertising career has mostly been outside the US.

The company also announced a multi-year plan to remake its core identity around the metaverse, where ads' role is TBD.

All this makes it easier for advertisers who are eager for alternatives to Meta to look elsewhere.

"There are a lot of other headwinds going against Meta — aging older, TikTok being much more successful right now, the iOS privacy changes hurting their ability to prove attribution," said a top ad buyer.


Google, Meta, and Amazon for years have taken every dollar of incremental ad spending, but TikTok and Apple are on track to gain market share this year at the expense of Facebook, along with Snap and Google's YouTube, Barclays wrote in a research note last week.

"Meta still drives some of the strongest performance for clients, whether it's awareness, return on ad spend. It's a key part of our social budget," said Carly Carson, head of social at the agency PMG. But clients plan to increase TikTok spending "a lot" this year, and are also excited about Twitter and Reddit, she added.

Small businesses still need Facebook

To be sure, for many of Meta's advertisers, it's business as usual. It's still the second-biggest ad business after Google, and the vast majority of its advertisers are small- to medium-sized companies that rely on it for promotion — even if the performance of their ads is more difficult to measure post-Apple's privacy changes.

Indeed, some ecommerce companies are pouncing on dips in Meta's ad prices and accelerating their ad spending when they see the opportunity, said Luke Jonas, chief commercial officer at ad agency Nest Commerce.


"This is an opportunity for more nimble brands to react to data rather than economic sentiment," Jonas added.

Ron Jacobson, CEO of Rockerbox, a marketing attribution platform that works with around 150 D2C brands, said Meta's share as a percentage of its clients' total spend had risen from 29.9% in the first quarter of this year to 31.7% in the second. However, this was still down from the 38.6% share Meta held of its clients' spending in the first quarter of 2021.

Elsewhere, TikTok's data practices and China ties are coming under scrutiny again, which could dampen its growth. Plus, unlike some digital ad sellers, Meta has billions of dollars of cash on hand — it had more than $43 billion of cash, cash equivalents, and marketable securities on its balance sheet as of March 31 — to help it cushion the impact of a broader downturn in online ad spending.

But a lot of work lies ahead for Meta. The company has said it would rebuild its ad infrastructure to continue ad targeting in a way that protects people's privacy in the wake of Apple's changes, but warned it would be a multi-year effort. It's also getting into the popular short-form video format with Reels and showing rapid growth there, but monetization is still a work in progress.


"We recommend investors move to the sidelines and use the time to assess several potential longer-term Meta valuation risks," Needham analyst Martin wrote in a July research note.

Are you a Facebook employee or advertiser with a tip to share? Contact Claire Atkinson on Google Voice (973) 544-8309 or Catkinson@businessinsider.com, Lucia Moses at lmoses@businessinsider.com or (917) 209-8549 on Signal, and Lara O'Reilly at loreilly@businessinsider.com, @loreilly1 on Telegram, or Twitter DM @larakiara. Other types of secure messaging app details are available on request. Get in touch using a non-work device.

Facebook faces a reckoning as advertisers slash spending and abandon the platform for the first time ever (2024)
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