Meta & the battle for digital advertising supremacy
With U.S. tech under mounting pressure in 2022, Meta (NASDAQ: FB) has been one of the highest-profile companies to fall foul of investors.
After scaling all-time highs in September last year, the parent company of Facebook and Instagram saw sharp declines in its share price following the release of downbeat results in February.
Antipodes has owned Meta (previously Facebook) since the end of 2018 and despite that recent volatility in which many sold out of the company, we think the reaction in-part has been irrational and it remains one of our top 20 holdings.
Market leading position
To provide a greater insight into the company’s position in the competitive digital advertising landscape, Ben Legg, a former Google COO and one of the world’s top authorities on the digital advertising industry, joined me on our most recent podcast episode.
Ben shared some of the reasons why he sees the large majority of digital ad spend still going to Facebook and Instagram. This is despite the rise of Tik Tok, which has spooked many Meta investors.
Ben says Facebook still commands a significant proportion of advertising budgets due to Meta’s scale and advanced advertising technology. .
They (Facebook and Meta) are always at the forefront and typically a year or two ahead of anyone else. What Facebook's doing is some clever stuff like looking at all the stuff we're being re-targeted with and then adding it to our purchase intent and letting all advertisers benefit. So for example if I go to a furniture store and look at bunk beds and I don't buy them, that company will re-target me with an ad for bunk beds. But it's not just them, Facebook adds bunk beds to my purchase intent and then anyone else selling bunk beds can target me. They are real cutting edge on that.
Structural growth story
During the episode we also discussed the longer-term picture for digital advertising, which can continue to grow as a percentage of GDP, despite an expected slowdown in digital ad spend this year
This is a viewed shared by Ben.
Anything that is non-digital is pretty much becoming digital. So there still is a lot of linear TV budget – ads linked to watching TV at a fixed time of day, which apart from news and live sport will pretty much die. But probably even more interesting, which many people may not have thought of is it’s also going to blur with retail.
One of the questions Ben asks is whether Instagram can become the world’s biggest fashion retailer.
While we monitor key risks, including regulation and increasing competition, Meta currently trades on 13x earnings including the loss making spend on the “metaverse”. We think the company offers pragmatic value for a business that maintains a market-leading position with structural growth prospects.
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In almost two decades of investing in equities based in Sydney and Singapore, Alison has worked through various market cycles and navigated major market events. Alison is a portfolio manager at Antipodes and a member of the senior investment team....