Facebook, Inc. FB informed advertisers Wednesday that changes Apple, Inc. AAPL made to its iOS operating system are negatively impacting ad performance in the third quarter. However, Bank of America analyst Justin Post says the 4% sell-off in Facebook’s stock is an overreaction to the news.
The Changes: Facebook also said in its blog post the iOS changes have also led to the company underreporting iOS web conversions by about 15%, which has made the negative impact of the changes appear far worse to advertisers than they really are.
Apple’s so-called identifiers for advertisers (IDFA), are unique device identifiers that allow Facebook and others to target ads to users and estimate their effectiveness. Apple iPhone and iPad users are now given the option to opt-in to IDFA tracking when they first launch an app.
Facebook gave advertisers some tips for dealing with the changes and said the company is optimistic it can eventually work through privacy headwinds.
Financial Impact: Post said the blog post makes clear the ADFA changes are a real problem for Facebook. In fact, he said the uncertainty will likely weigh on Facebook stock at least until third-quarter earnings, which now appear unlikely to exceed current analyst expectations.
Fortunately, Facebook chose not to cut its guidance in the blog post, although Post said market expectations may now be lower for the third quarter. In the longer term, he said privacy chances could ultimately benefit online media platforms like Facebook and Alphabet, Inc. (NASDAQ GOOG) GOOGL subsidiary YouTube, which are both ramping up in-app shopping.
“As usual with disruptions, such as GDPR or advertiser boycotts, we would expect backfill in Facebook’s ad auction (by brand advertisers in this case), and then the impact to fade as platforms adopt strategies to increase opt-in rates, build products for in-app activity (such as shopping capabilities), and adopt new targeting and measurement capabilities,” Post said.
Bank of America has a Buy rating and $425 price target for Facebook.
Benzinga’s Take: The market hates uncertainty more than anything else. Unless Facebook provides another update on the situation at some point, upside or the stock may be limited until Facebook’s third-quarter earnings report expected out in early November.
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