Facebook reported record revenue as marketers boosted ad spending during the holidays, while also warning about the possible negative effects on ad targeting from Apple's stricter privacy measures. CEO Mark Zuckerberg said in a Wednesday earnings call that his company increasingly sees Apple "as one of our biggest competitors."
In Q4 of 2020, Facebook's profit climbed 53% to a record $11.2 billion as revenue increased 33% to about $28.1 billion, per its quarterly earnings report. The company ended the year with a 22% gain to $86 billion in revenue, including a 21% rise in ad sales to $84.2 billion.
The user base for its family of apps, including Instagram, WhatsApp, Messenger and its main social network, grew 10% to 2.6 billion for the period, per its earnings presentation. The strong results may indicate that companies like Amazon, Google, Pinterest, Snap and Twitter also will report significant gains in digital advertising for the holiday quarter.
Facebook's strong revenue growth suggests marketers ramped up their ad spending on its social network and Instagram to reach consumers during the holiday shopping season. The company's earnings confirm Socialbakers' platform data that found worldwide spending on social media advertising continued a "meteoric rise" in Q4 as marketers targeted homebound consumers during an uncertain holiday season. Along with the rise in ad revenue, Facebook's strongest growth was from its "other" category that includes its Oculus virtual reality unit and Facebook Marketplace for classified ads, with revenue surging 156% year-over-year to $885 million during the quarter.
However, the company also warned that Apple, which also reported record revenue on strong iPhone sales, is becoming a bigger competitive threat. David Wehner, CFO of Facebook, said the company expects Apple to update its software with stricter privacy controls this quarter.
Apple hasn't backed down from its plan to update the software that runs its devices with new privacy protections. After the update, Apple customers will see a pop-up warning when an app asks for permission to access the Identifier for Advertisers (IDFA) that the company puts on its devices. The identifier helps to track online activities of Apple users and improve ad targeting. Apple CEO Tim Cook today will speak about data privacy at the Computers, Privacy and Data Protection virtual conference.
"Many small businesses will no longer be able to reach their customers with targeted ads," Zuckerberg said Wednesday's call. "Apple may say that they're doing this to help people, but the moves clearly track their competitive interests."
Facebook last year warned that Apple's updated privacy settings would trigger a 50% drop in revenue for its Audience Network that lets developers use the social network's detailed consumer data for in-app ad targeting. Apple has countered Facebook's argument, asserting that the changes to its privacy settings still allow consumers to grant permission to be tracked. Apple's plan has faced opposition from advertising community, with more than half (56%) of marketers saying they expect to see a negative effect from Apple's planned privacy changes, an October survey by AppsFlyer found.
Facebook also is among the companies that have criticized Apple for its dominance in app distribution with its App Store, which charges a variety of fees on paid downloads and subscriptions. Epic Games, the maker of "Fortnite," online dating company Match and streaming app Spotify have lined up against Apple over its fee structure. During Wednesday's call, Zuckerberg singled out Apple's messaging app iMessage as a key competitive threat.
"iMessage is a key linchpin of their ecosystem. It comes pre-installed on every iPhone and they've preferenced it with private APIs and permissions, which is why iMessage is the most used messaging service in the U.S.," he said. "And now, we're also seeing Apple's business depend more and more on gaining share in apps and services against us and other developers. Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own."
While the daily active user (DAU) base for Facebook's main social network grew from the prior quarter by 25 million users to 1.85 billion worldwide, it lost 1 million users in the U.S. and Canada. The decline may have been the result of greater competition from rivals like TikTok, eMarketer analyst Debra Aho Williamson told the Associated Press.