JEFF REEVES’ NUMBERS STRENGTH
Meta Platforms appears to be a company that just won’t stop, with shares more than tripling this year. However, if given the option, investors may prefer to select Alphabet, a rival in digital advertising.
Yes, Facebook parent Meta Platforms exceeded profit estimates and provided upbeat guidance. However, just as investors were celebrating those accomplishments, the European Union fined Meta $1.3 billion for data privacy violations.
Alphabet Inc., Google’s parent company, is up roughly 40% year to date. Even if results weren’t as huge on Wall Street, the report was encouraging. In fact, a deeper look reveals why this stock may be a better option right now than Meta. Here are the key elements to consider when comparing these digital advertising behemoths — and why I’m betting on Alphabet.
Google advertising dominate and are more transactional:
According to Insider Intelligence, Meta has a 20.1% worldwide digital ad market share, trailing Google’s 28.4%. But, more crucially, Google’s composition is now more favourable. According to a recent analysis in the advertising industry newspaper Digiday, there is a growing tendency towards “retail media” that targets customers at or around their transactions – typically to persuade them to choose Brand A over Brand B. That makes basic sense in a harsher spending climate with fewer funds to go around, and will help Alphabet or even smaller competitor Amazon.com, which has 7.5% of the global ad market, more than Meta.
While advertising remains Alphabet’s main source of revenue, its year-end report indicated that in 2022 it collected $59.0 billion from Google advertisements — followed by $8.8 billion from “other” Google services like as its Play app store and products such as Fitbit, Nest, and Pixel devices. In addition, it received $7.3 billion from its rapidly expanding Google Cloud division.
Meanwhile, Meta’s financials only contain a hazy “non-advertising revenue” category for Oculus VR devices and developer fees, and that figure was less than $3 billion for the entire year of 2022. In other words, if the main ad business suffers, Facebook and Meta will suffer much more.
While CEO Mark Zuckerberg has recently emphasised Meta’s interest in AI,
the truth is that a major reason this stock has plummeted in recent years was a flop in a different area of technology – the metaverse, from which the business derives its name.
Indeed, Meta shares are down almost 30% from their peak in 2021 as a result of the company’s errors. Meanwhile, Alphabet has been discreetly investing in artificial intelligence for years. It purchased a ChatGPT competitor dubbed Anthropic in 2022, before we even understood what ChatGPT was. Then, in 2014, it purchased an AI firm called DeepMind, followed by a series of further acquisitions. In other words, if you want a business that has been actively thinking about AI for years rather than toying with cartoonish avatars and arriving late to the party, Alphabet is the way to go.
Tiktok/Twitter issues do not match Facebook/Instagram growth:
With Meta’s reliance on social advertising, it’s evident that the firm lives and dies by this revenue stream. But, for the record, if you believe that a Tiktok ban (even if such a restriction is achievable) will drive a flood of refugees to Facebook and Instagram, you should reconsider. The same is true for elderly people who are dissatisfied with recent developments at Twitter Inc. If people abandon Facebook, it appears that some upstart alternative will profit, much like Tiktok or Snapchat did in previous years, rather than the exodus leading to a return to Facebook.
