Last year, Apple (NASDAQ: AAPL) implemented changes to its operating system that made it more challenging for third parties to collect data on users of its electronic devices like iPhones or iPads. Social media companies like Meta Platforms (NASDAQ: META) are suffering. They rely heavily on selling targeted ads, and marketers are unwilling to pay as much without the feature.
Impressively, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has fared reasonably well amid these changes. Let’s dive deeper into the impact of these changes on Meta Platforms and why Alphabet is not hurting as badly.
Meta Platforms to take a $10 billion hit in 2022.
Apple’s iOS 14.5 update, released last year, includes an app tracking transparency tool that limits the amount of data app developers can collect. These companies now need to ask users for permission before they can track their activity, an option many choose not to give. Of course, marketers are willing to pay higher prices for precise, targeted advertising. It all but eliminates the instances when advertisements for a steak restaurant in Denver are sent to a vegetarian living in Omaha, Nebraska.
Meta’s management has highlighted the change as a substantial headwind, noting it would cost the company upwards of $10 billion in revenue in 2022. To put that figure into context, Meta reported $118 billion in revenue in 2021. The social media giant reported fiscal 2022 second-quarter results on July 27, showing its revenue declined for the first time in its history. Meta forecasts a similar fall in its third quarter.
Alphabet’s Android operating system is insulated from decisions by Apple
That said, Alphabet has done relatively well amid Apple’s changes. Meta’s CFO, David Wehner, has suggested Alphabet has performed better because it faces a different set of restrictions as it pays to be the default search engine on iOS devices. He said Apple designed these changes to carve out browsers giving search ads more access to data for measurement and optimization (targeting). That might all be true. Understandably, Apple would not want to alienate a partner that pays it to become the default search engine.
However, another reason Alphabet is effectively dealing with these changes (it reported a revenue increase of 13% in its most recent quarter, while Meta’s decreased by 1%) is that its own Android operating system boasts more than 3 billion active devices worldwide. Users on the Android platform are not affected by the changes made by Apple. On Android devices, Alphabet sets the rules so that it can set policies in its favor.
Overall, both factors collectively boost Alphabet’s position in the advertising industry. In 2021, marketers spent $763 billion globally, an increase of 22.5% from 2020. Within the market, digital’s share grew to 64.4% in 2021 from 52.1% in 2019. Part of the reason marketers are shifting dollars to digital channels is because of the greater return on investment. It remains to be seen whether that trend will continue amid Apple’s iOS changes. Nevertheless, it’s a high-stakes outcome for all the players involved, and investors should stay tuned.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Parkev Tatevosian has positions in Alphabet (C shares) and Apple. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Meta Platforms, Inc. 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.