Facebook ad backlash gives meta CEO Mark Zuckerberg the freedom to chase away bets

Meta CEO Mark Zuckerberg is once again a fan favorite on the 8th Street. The same can’t be said for Snap CEO Evan Spiegel.

Both companies were hit by Apple’s iOS privacy change at the end of 2021 and the broader economic mess last year, highlighted by rising inflation, rising interest rates and the war in Ukraine. Their advertising businesses shrank and investors were saved. There was a mass ejection.

But on consecutive days this week the stark contrast between the two companies has become clearer than ever. Snap shares sank 14% on Wednesday after issuing a disappointing forecast the previous afternoon. Meta shares rose almost 7% in extended trading on Wednesday following better-than-expected results, a return to double-digit growth and rosy guidance for the third quarter.

Shares of Meta are now up more than 160% for the year. Snap is up 20%, around inline with s&P 500.

Neither Zuckerberg nor Spiegel has plans to cut back on spending money on experimental projects. Meta is burning billions of dollars a quarter in the futuristic metaverse, and Snap is pouring money into augmented reality products and services. Both are seeking many benefits of artificial intelligence.

The difference is that Meta has fixed the finances. While Snap’s revenue fell 4% in the second quarter, Meta is growing again, driven by Facebook’s ad business.

Meta Chief Financial Officer Susan Li told analysts on the company’s earnings call that ad revenue rose in part due to an increase in spending by online retailers and Chinese companies, continuing a trend from the previous quarter.

Li also said that online advertisers are adopting the flawed Advantage + service, which analysts have said is helping the company improve the effectiveness of its ad system following the iOS privacy change.

“We are seeing this work translate into results for advertisers as conversion growth remains strong in Q2,” Li said.

Even with the return of advertising, analysts questioned Zuckerberg on the earnings call about the business’s rationale for investing in the metaverse and expressed concern about mounting losses at the company’s Reality Labs unit.

Zuckerberg’s pitch for the company’s metaverse investment — which inspired the name change to Meta in 2021 — continues to center around the idea that the company should have a platform. Facebook Instagram has Android, Apple has iOS, and Google has always been forced to play by their own rules in order to get distribution for its apps, which include Instagram and Appbathhatsapp.

The Metaverse is where Zuckerberg sees that dynamic change. However, he has said it could take a decade and told analysts on Wednesday that he “can’t guarantee you I’ll be eligible for this bet.”

“I think that’s the direction the world is going,” Zuckerberg said. “A billion or two billion people have glasses today; I think in the future, they will all be smart glasses.”

Meanwhile, Spiegel presented Snap’S AR projects as a” focused long-term “investment that represents” an extension of our core platform rather than entirely new bets.”

An analyst on Tuesday asked Spiegel whether the company has” too many employees who are working as five-year projects that are not generating revenue, ” underscoring the general concern that Snap is spending too much time and investment in the future instead of resolving immediate financial concerns.

And while Meta has seemingly fixed most of the ad problems, Snap is still struggling.

“Profitability is being particularly impacted by a major leap in infrastructure spending as Snap invests in AI both to enhance the user experience and to try to improve ad targeting capabilities,” James Cordantanell, an analyst at Atlantic Equities, wrote in a note to clients. As a” subscale platform, “Cordflix said he’s skeptical of Snap’s ability to succeed in those areas while” still delivering attractive returns to investors.”

See: Advertising on the internet is ” target specific.”