- Facebook's stock sank to an 18-month low on Thursday following a brutal revenue forecast, while Google is down only slightly from its record close in November.
- The Big Tech companies produced very different earnings reports for the fourth quarter, sending investors in diverging directions.
- "Did Apple iOS changes trigger a market share shift from Facebook to Google?" MKM Partners' Rohit Kulkarni wrote in a report on Thursday. "Yes, we believe so."
The difference is Apple.
Google and Facebook are the two dominant online ad companies in the U.S. and have been for years. While the companies do very different things and have faced their own unique issues, their five-year stock charts look pretty similar.
Until you hit late 2021.
That's when Facebook founder Mark Zuckerberg's longtime struggle to control his own destiny started hitting his company's financials.
Google also relies on ad targeting to connect marketers with users on many of its properties, but search advertising is a unique asset — users tend to "self target" as they're typing in a search query that explains exactly what they're interested in at that moment.
When it comes to targeting, Google has Android, the world's most popular operating system, giving it control over its own policies. And while Google still needs iOS distribution, it has a cozier relationship with Apple than Facebook. Google pays Apple billions of dollars a year to be the default search engine on Apple's Safari browser.
Add it all up, and Facebook just told Wall Street that Apple's new App Tracking Transparency (ATT) feature is expected to cost the social media company $10 billion in revenue this year. That's a big reason why the company fell well short of its revenue forecast for the first quarter and why the stock plummeted 25% on Thursday, its biggest drop ever, to its lowest point since August 2020.
Google, meanwhile, reported blowout fourth-quarter results earlier this week on the back of a 33% jump in ad revenue, compared to 20% for Facebook. Analysts expect Google parent Alphabet to achieve a 23% gain in the first quarter, while Facebook is projecting expansion of just 3% to 11%.
Dave Wehner, the CFO of Facebook parent Meta, said on Wednesday's conference call with analysts that when it comes to Apple treating search more favorably than other apps because of the Google deal, "the incentive clearly is for this policy discrepancy to continue."
Analysts see the correlation. Advertisers that can no longer get the level of targeting they want on Facebook are spending more on Google.
"Did Apple iOS changes trigger a market share shift from Facebook to Google?" MKM Partners' Rohit Kulkarni wrote in a report on Thursday. "Yes, we believe so." MKM has a buy rating on both stocks.
Sheryl Sandberg, Facebook's operating chief and a former senior executive at Google, said Apple's changes are most harmful to small and medium-sized businesses, which are most reliant on personalization and targeting in their advertising.
"So we're definitely seeing that this has more of an impact for 'SMBs,' " she said.
Zuckerberg has been worried about this possibility for a long time. Without owning the device or operating system, Facebook can't fully chart its own path, and is always subject to the whims of other companies. About a decade ago, Facebook designed its own phone, but it was a disaster.
Here's what Facebook said in the risk factors of its IPO prospectus in 2012, which was still the early days of mobile for the company.
"We are dependent on the interoperability of Facebook with popular mobile-operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade our products' functionality or give preferential treatment to competitive products could adversely affect Facebook usage on mobile devices."
In 2014, Facebook acquired a nascent virtual reality headset company called Oculus for $2 billion, giving the company a shot at making the next generation of hardware and integrating its own software.
That acquisition is the foundation for the future that Zuckerberg so much desires. Late last year, he changed Facebook's name to Meta Platforms. In Thursday's earnings report, the company said its Reality Labs group, home to the virtual reality development, lost more than $10 billion in 2021.
Investors are rightly worried. Facebook's core business is losing users, and Apple is flexing in a way that's causing panic.
For Zuckerberg, the answer to his real world problems may be the virtual world. As much as anything, he wants to break free of Apple and Google, so his company gets to be the one making the rules.
— CNBC's Kif Leswing and Jennifer Elias contributed to this report.
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