IDFA Seen as a 'Real Headwind' for Facebook (FB) but Analysts Remain Positive

September 23, 2021 6:01 AM EDT
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Shares of Facebook (NASDAQ: FB) fell 4% yesterday after the company said it is underreporting the results of its advertising business on Apple (Nasdaq: AAPL) iOS devices due to recent privacy changes.

"The cost of achieving your business outcome may have increased and it’s also gotten harder to measure your campaigns on our platform. In some cases, this is due to underreporting on our part," wrote Graham Mudd, Facebook's VP of Product Marketing.

"Our estimate is that in aggregate we are underreporting iOS web conversions by approximately 15%; however there is a broad range for individual advertisers. We believe that real world conversions, like sales and app installs, are higher than what is being reported for many advertisers,” Mudd added.

BofA analyst Justin Post reiterated a Buy rating and a $425.00 per share price target despite acknowledging that IDFA is a “real headwind.” Still, estimates are also left unchanged as the IDFA warning is not seen as an indicator that FB could miss on Q3 views.

“For Facebook, we estimate businesses that are at most risk of IDFA changes include FB Audience Network net revenues (we est. $2bn), and FB mobile app install campaigns within FB’s ecosystem at possibly 15-20% of ad revenues. If we assume 50% of FB revenues are on iOS, a 50% degradation in FAN revenues (see FB’s blog post “Preparing Audience Network for iOS 14”) and 30% degradation in app install revenues, we estimate a potential for a 3% rev. headwind. Add in potential CPC pressure from eCommerce measurement issues, we could see a 5%+ headwind, though we would expect proactive measures by Facebook to reduce the impact to below 5%. Ultimately we believe privacy changes could be a net benefit to major online media platforms (FB, YouTube) that are building capabilities for in-app shopping. In any case, we expect 3Q to have the biggest IDFA impact of any quarter,” Post said in a client note.

Post estimates the IDFA impact to be “mid-single digits” while the Street estimates of 37% 3Q growth are still achievable. He projects FB to deliver a 39% growth rate in the quarter.

BMO analyst Daniel Salmon reiterated an Outperform rating and a $425.00 per share price target on FB.

“After reiterating the privacy headwind impact today, we think it's more likely that any updated language for 4Q still calls for modest two-year deceleration. But with iOS 14.6 reaching mainstream adoption, we expect management to say the worst is behind FB, and it continues to drive advertiser uptake of tools like the Conversions API and AEM to improve overall mitigation,” Salmon said in a note sent to clients.

He believes the IDFA impact can be offset by the higher ad load.

“Targeting/measurement restrictions are driving higher ad prices, which (in a vacuum) drive lower advertiser ROI. And so new ad load in Instagram Reels and Shop tab should add supply to the FB auction and help moderate pricing and boost ROIs,” Salmon concluded.

Shares of Facebook are up 1.3% in pre-open Thursday.

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