Apple's Privacy Changes, TikTok Competition Inescapable For Meta, For Now

Stiff competition from TikTok and Apple Inc's privacy changes will remain a cause for concern for Facebook-owner Meta Platforms Inc in the near term, Wall Street analysts said.

At least 10 brokerages cut their price targets on Meta after the company reported its first-ever quarterly revenue drop on Wednesday, highlighting challenges faced by U.S. companies from a stronger dollar as well as worries of an impending recession.

Shares of the company, which also owns Whatsapp, were trading at $161.65 before the bell, adding to its year-to-date losses of 50%.

Apple upended the digital ad industry when it introduced new iPhone privacy controls last year that hurt the ability for companies such as Meta and Snap Inc to target and measure ads on their apps.

That, coupled with TikTok's growth is exacerbating recessionary fears, according to analysts.

"Tough comps, macro and FX are certainly part of the near-term story, but TikTok competition and Apple iOS changes will both have a bigger impact than expected in 2022," J.P. Morgan analysts said.

Reels, a short video product Meta is increasingly inserting into users' feeds to compete with TikTok, cannibalizes more profitable content and will be a headwind in the short term before eventually boosting income, company executives said.

Many analysts also expect Meta could return to stronger growth in 2023, but noted the sputtering start to its metaverse dream, as regulators clamp down on big tech firms, setting back their innovation plans.

Also weighing on Meta's shares was the U.S. Federal Trade Commission seeking a court order to block the company from buying virtual reality content maker Within Unlimited.

Laura Hoy, equity analyst at Hargreaves Lansdown, pointed to the inevitable quicksand of negative sentiment around Meta.

The FTC's move is "not only a nuisance for Zuckerberg's vision for a digital future, but a shot across the bow for the entire industry", Hoy said.