Third Quarter Big Tech Earnings Shed Light on Privacy Impact

Many of the world’s biggest tech companies reported quarterly earnings this week, equipping marketers with new benchmarks to measure how the latest privacy changes across mobile operating systems have impacted audience targeting, campaign performance, and ad measurement. Today’s briefing provides a snapshot of how tech companies are navigating the downstream effects of new privacy measures, ushering marketers into a new era of privacy-first advertising.

Tech platforms continue to benefit from consumer trends accelerated by the pandemic, such as rising ecommerce adoption, the shift to streaming and ephemeral messaging, and prolonged remote work, powering growth across ad sales, and cloud computing, among other business units. 

Apple’s iOS privacy changes are impacting tech platforms differently, with some benefiting from the shift to privacy-first advertising, while others advocate for different solutions for improving data transparency.

Tech companies face compounding challenges moving into 2022, from increased regulatory scrutiny to sluggish adoption rates among influential demographics like young adults and teenagers, which in turn, are driving organizational structural changes and newfound transformation strategies to help leading companies remain competitive.

Nearly six months after Apple released its App Tracking Transparency (ATT) framework via iOS 14.5, the latest estimate from app analytics firm Flurry shows users have opted in to tracking only 16 percent of the time. Interestingly, the quantifiable impact of ATT varies across platforms, with Google parent Alphabet, for instance, recording its highest sales growth numbers in more than a decade, while Facebook reported sluggish sales growth and Snap missed earnings expectations. 

Google brought in $53.13 billion in ad sales — a record high for the search giant — compared with Facebook’s $28.28 billion, a slight decline from the previous quarter, according to The Wall Street Journal. During the earnings calls, Google reported that Apple’s privacy changes had a “modest [negative] impact” on YouTube revenue and benefited Google’s core advertising business for Google Search, while Facebook has begun to feel the impact of ATT and a loss in tracking. 

“We’ve been open about the fact that there were headwinds coming – and we’ve experienced that in Q3. The biggest is the impact of Apple’s iOS14 changes, which have created headwinds for others in the industry as well, major challenges for small businesses, and advantaged Apple’s own advertising business. We started to see that impact in Q2, but adoption on the consumer side ramped up by late June, so it hit critical mass in Q3. As a result, we’ve encountered two challenges. One is that the accuracy of our ad targeting decreased, which increased the cost of driving outcomes for our advertisers. And the other is that measuring those outcomes became more difficult,” said Sheryl Sandberg, Facebook’s COO, on the Facebook quarterly earnings call. 

Snapchat acknowledged that its ad business “was disrupted” by Apple’s privacy changes on the company’s earnings call last week. While the social platform anticipated some level of disruption, Apple’s new measurement solution didn’t scale as the company expected, making it more difficult for advertisers “to measure and manage their ad campaigns for iOS.” Snap ad sales hit $1.1 billion, with revenue rising more than 55 percent in the third quarter, results that were slightly below analyst expectations and the company’s own guidance. 

In a bright spot, Snapchat’s “direct response ads business is growing faster than its brands ads business, pointing to Snapchat’s continued success in attracting small and medium-sized businesses to its self-serve ad platform.,” according to Axios. Snapchat also shared that supply chain challenges impacted its ad business as advertisers were limited by product availability and labor shortages. 

Related: Microsoft reported record engagement for LinkedIn as membership has reached nearly 800 million worldwide and ad sales increased 42 percent last quarter, resulting in more than $10 billion in annual revenue for the first time in the company’s history. 

“Broadly speaking, these changes have upended many of the industry norms and advertiser behaviors that were built on IDFA over the past decade,” Snapchat said in prepared remarks. Looking ahead, Snap executives said they expect ad sales growth to slow, guidance that dropped Snap’s stock by close to 25 percent in after-hours trading. 

In contrast, Twitter posted $1.28 billion in revenue, in line with Wall Street expectations, with ad sales rising 41 percent year-over-year. Because Twitter’s revenue isn’t “as tied to target digital ads as some of its rivals, Twitter CFO Ned Segal told The Wall Street Journal, that “the broader advertising ecosystem is still adjusting [to the updated app privacy rules] that [have] been less of a factor for us.” 

Looking ahead, analysts don’t anticipate Apple’s new measurement solution will render long-term damage to the financial performance of other companies, though the industry’s new focus on privacy-first measurement solutions will push them to heavily invest in new products and technologies as their ads businesses evolve. 

Podcast advertising is on the rise: Spotify’s third-quarter advertising revenue increased 75 percent year-over-year, according to The Wall Street Journal. User growth also rose 19 percent year-over-year to 381 million monthly active users, signaling the company’s investment into podcasting is paying off. 

Facebook to focus on the younger users and the metaverse: The biggest news coming out of Facebook’s earnings report this week was that the company will break out Facebook Reality Labs (FRL) as a separate financial reporting segment, helping the company dedicate more resources to its augmented and virtual reality products and services to power the metaverse and new social experiences. On Thursday, Facebook announced the company’s parent company will be Meta.