Meta, the parent company of Facebook and Instagram, has successfully made a tremendous amount of money in recent years by using a wealth of data obtained about its users by tracking their activities. Without the ability to track users activity, however, Meta cannot really sell ads, and as a result would suddenly see a material step down in its revenues. In June 2020, Apple announced that it would roll out a host of changes to the iOS operating software that would essentially cut off Facebook and its sister services from almost all the tracking abilities and information that they need to sell targeted ads as they had been for many years. It was such a drastic change that it would derail Metas extraordinary price-to-earnings ratio and high revenue growth trajectory into something more in line with a classic slow-growth media company. However, beginning in March 2021 (shortly before Apples changes went into effect), and until February 2022, Meta and its upper management misled investors about its mitigation efforts to counteract the impact that Apples changes would have on its ad business. Despite acknowledging that Apples changes would create headwinds to its ad business, Meta painted a false and misleading picture about the effectiveness of mitigation efforts it put in place to counteract the changes. The efforts that were touted included, among other things, requiring less data in targeted ad campaigns; claims that Meta was building other data sources that advertisers could make use of; having more onsite conversion opportunities for advertisers; closing a supposed underreporting gap to identify a supposedly more robust and more accurate return on investment for advertisers; and automation to allow advertisers to leverage machine learning to find audiences for targeted ad campaigns. As later revealed, these mitigation efforts were ineffective. The Action alleges that Meta and its senior executives knowingly or recklessly failed to tell investors that (1) Apples iOS privacy changes were having a material impact on Metas ability to provide the kind of targeted advertising that its customers wanted and, as a result, customer ad spending was dropping precipitously; (2) Metas mitigation efforts were either not properly implemented or ineffective; (3) measurement of ads was not accurate as mitigation efforts were failing; and (4) Meta did not have a plan in place to properly address the impact of the iOS privacy changes. The Action also alleges that Meta and its senior executives failed to disclose known trends related to an exodus of Facebook and Instagram users to rival social media platform TikTok; and that in an effort to counter this undisclosed material trend, Meta was cannibalizing itself by pushing revenue-generating business away from Facebooks Stories and elsewhere to its lower-margin Reels video function. The true impact that Apples privacy changes and TikTok had on Metas ad business was revealed on February 2, 2022 during Metas earnings call for the fourth quarter of fiscal year 2021. During that call, Meta disclosed that the mitigation efforts in fact had not rendered the effects of the iOS changes manageable. Instead, Metas advertising business would suffer a shattering $10 billion revenue hit from the iOS privacy changes. These admissions, as well as Metas acknowledgment of the negative impacts from TikTok, caused over 26% of Metas market capitalization to be wiped out in one day, as the value of Metas stock sank over $85 a share.
For More information as well as to join this case please contact Atara Twersky, Esq. at atara@twerskylawgroup.com or atwersky@aftlaw.com. Atara is Principal at Twersky Law Group and Of counsel at AF&T law firm where she is director of Investor Services. Atara focuses her practice on assisting her clients with increasing their investment portfolio recoveries and ensuring that their portfolios remain healthy and robust. For more information on shareholder recoveries click here and to listen to Atara’s podcast with notable guests in the Pension fund Industry listen to Pension and Investments Podcast, on all matters related to your investment portfolio and more. For more information on Atara and her legal work connected to shareholder protection click here.
