Meta and Alphabet continue to see strong growth in ad business

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Meta and Google have reported strong growth in their ad business for the fourth quarter of 2021 ended 31 December (Q4 2021). Meta's ad revenue Q4 2021 jumped 20% year-on-year to US$32.63 billion despite concerns brought about by Apple's iOS14 changes last year. Year-on-year ad revenue growth was strongest in Asia Pacific at 31%. Rest of World, Europe, and North America grew 28%, 20%, and 15%, respectively.

Meta's overall ad revenue for the year grew from US$84.16 billion in 2020 to US$114.93 billion in 2021. This latest quarter marked the first holiday season after Apple's iOS changes, which according to COO Sheryl Sandberg, have had an impact on businesses of all sizes, especially small businesses that rely on digital advertising to grow. Sandberg said during the conference call that the iOS change will continue to be a factor in 2022.

Other macro trends that contributed to headwinds in the fourth quarter include globally supply chain disruptions, labour shortages, and inflationary pressures. Consumers were also predicted to shop earlier in the holiday season to avoid potential supply chain issues and shipping delays. This was in line with the behaviour that Meta saw from advertisers, as many of them frontloaded their spend earlier than usual.

While its ad revenue remained strong, Meta's Reality Labs segment did not fare as well, reporting an annual net loss of US$10.19 billion in 2021 on US$2.27 billion in revenue. This is the first time Meta is reporting on two operating segments -- Family of Apps and Reality Labs -- ever since the parent company's rebranding from Facebook last October. Meta's financial report showed that Reality Labs also posted a net loss of US$6.62 billion in 2020 and US$4.50 billion in 2019. That said, Reality Labs still posted a 22% revenue increase to US$877 million from the previous quarter.

Meta is also witnessing slowing growth for its apps. Global monthly active users for the Facebook platform remained stagnant at 2.91 billion from the previous quarter. According to Reuters, Meta's shares dipped more than 20% yesterday after it posted a weaker-than-expected forecast. The dip removed about US$200 billion of its market interest while Reuters said Twitter, Snap, and Pinterest lost another US$15 billion in value. Shares of Alphabet also dipped nearly 2%. Additionally, Bloomberg reported that CEO Mark Zuckerberg would most likely have US$24 billion erased from his personal fortune.

Meanwhile, Alphabet's ad revenue for Q4 2021 was US$61.23 billion, up from US$46.19 billion the same period last year. Google Search took home the lion's share (US$43.30 billion) followed by Google Network (US$9.3 billion) and YouTube ads (US$8.63 billion). Overall, Alphabet's revenue jumped 32% year-on-year to US$75.32 billion globally during the fourth quarter. Asia Pacific, in particular, witnessed a 28% year-on-year quarterly growth to US$12.73 billion. Its annual revenue jumped 41% to hit US$257.63 billion.

Sundar Pichai, CEO of Alphabet and Google, said the fourth quarter saw ongoing strong growth in its ad business, which helped millions of businesses thrive and find new customers. The quarter also marked a quarterly sales record for its Pixel phones despite supply constraints, and its Cloud business continuing to grow strongly.

Meanwhile, Google Cloud witnessed an operating income loss of US$890 million during the quarter, a slight improvement from the US$1.2 billion in December 2020. Google Cloud includes Google's infrastructure and platform services, collaboration tools, and other services for enterprise customers.

On the other hand, Google Services witnessed an operating income of US$25.99 billion during the fourth quarter, an increase from US$19.06 billion during the same period in 2020. Google Services includes products and services such as ads, Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube. According to Reuters, Alphabet's results "topped expectations" and resulted in its shares jumping more than in after-hours trading.

Photo courtesy: 123RF

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