According to some advertisers, Meta's advertising platform is collapsing.
meta platform (meta -2.15%) Controversy is not uncommon, but in the eyes of investors, this stock has done everything right over the past year and a half. Meta's stock price has soared more than 300% since the start of 2023 as advertising revenue growth recovered. The company went through a “year of efficiency,” cutting costs and regaining investor confidence.
But there are now warning signs that that momentum may be faltering.
Advertisers took to social media to claim that the company's ad platform was broken and that ad rates were unrealistic and unsustainable. Some of the small and medium-sized businesses that make up Meta's core advertising customers have pulled back from advertising, stopped advertising on Facebook and Instagram altogether, or shifted their budgets to other platforms. alphabetGoogle and ByteDance's TikTok.
Some of the complaints posted on X can be seen below.
The current meta is terrible. When people complain about algorithms, I usually think it's seasonal buying behavior, but I think the meta is messed up right now. I saw the strangest performance and data I've seen in a while.
— Cody Plofker (@codyplof) February 24, 2024
Reduced meta spending by 40-50% overall. This channel is currently in disarray. I don't know what else to say.
Those on Facebook are up 30-35% since the February 14th outage, and those on IG are about the same. Still, Meta continues to pump more money into FB placements…
— David Herrmann (@herrmanndigital) March 8, 2024
How Meta got here
Meta cut more than 20,000 jobs last year in an effort to improve profitability, flatten its management structure and streamline its operations. CEO Mark Zuckerberg is pleased with the results, and not just because profits have increased. “I feel like we've come to believe that we're better off operating as a lean company,” Zuckerberg said during a recent earnings call.
That may be true, but looking at the protests above, it seems like the social media giant may have cut too far to the bone. In April last year, layoffs of engineers and related technology teams reportedly hurt employee morale, and one meta advertiser I spoke to believed the layoffs were a direct result of the ad platform's problems. He said there was. They said Meta's “entire advertising platform feels broken.”
Meanwhile, advertisers are moving to other platforms. However, he is not completely under attack from those who are upset. Cody Plofker, whose post from X is featured above, recently told Bloomberg that marketing through meta has both bad and good sides. “There is a lot of volatility, but there is also a lot of room for upside,” he said.
What it means for Meta stocks
Meta is in a much different position than it was a year ago, when it was cheap and priced in for a turnaround. The stock may not be perfectly priced these days, but it's priced for success at 35x earnings, a sign so far that the layoffs are nothing but a win for the company. There are almost no work.
Meta needs to solve engineering problems for advertising platforms. That's expensive, but it's a cheaper solution than forcing advertisers to flee to competing platforms.
It is unclear whether these issues affected the company's first quarter results, but there may be some questions about this during the company's first quarter results announcement on April 24th.
Should you sell Meta stock?
Meta has faced many challenges in the past, including the Cambridge Analytica scandal and the 2020 Stop Hate for Profit boycott. apple's ad-tracking crackdown and questionable pivot to expensive Metaverse development projects. Each time, the company has adapted and recovered, and the stock is once again trading at or near all-time highs.
Meta's product is well-established, so mismanagement of the ad platform won't devastate the business. After all, about half of the world's population uses the company's products on a regular basis, and millions of advertisers rely on it as their primary customer acquisition tool.
However, the pushback from advertisers is likely to be significant, and the longer this situation lasts, the worse it will become, so Meta will need to make amends. It's unclear how long the fix will take, but it could impact business for at least the next few quarters.
This is by no means a fatal threat to the meta, but investors who have made enough profits after a stock price spike may want to take some of their profits off the table, especially if the stock is trading at a premium. should be considered. With this issue plaguing it, it will be difficult to make further profits.
Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Jeremy Bowman has a meta role on his platform. The Motley Fool has positions in and recommends Alphabet, Apple, and Meta Platform. The Motley Fool has a disclosure policy.
