A proposed class action alleges the company formerly known as Facebook failed to share with investors the extent to which new Apple iOS privacy protections would harm the social media platform’s advertising business.
The 16-page lawsuit says that although the new privacy protections Apple released in June 2020 were “a sea change to the advertising world,” such that they were “certain to derail Meta’s increasing revenue trajectory and high price-to-earnings ratio,” the company wrongfully painted a more positive picture to investors.
The complaint charges that from March 2021 to February 2022, Meta and its most senior upper management nevertheless misled investors with regard to the company’s efforts to mitigate the effects of the new Apple privacy changes, which effectively cut off Facebook and Instagram from almost all of their tracking and targeting capabilities for iPhone and iPad users, and “counteract the devastating impacts” they would have on Meta’s ad business.
As the suit tells it, the company declined to inform investors that Meta’s mitigation efforts were doing little to stem the “headwinds” to ad revenue the defendant faced in the wake of the iOS privacy updates.
“Defendants acknowledged that Apple’s changes would be bad for Meta. It would create ‘headwinds’ to its advertising business. But Defendants failed to tell investors by what order of magnitude the changes would hurt the ad business until February 2, 2022, when they admitted to a staggering $10 billion impact on revenue.”
At the same time, the lawsuit says, Meta also failed to warn investors that it was staring down “materially increasing” competition from TikTok, which caused the social media platform to steer users to its “Reels” feature.
“Instead of being transparent with investors, Defendants painted a false and misleading picture of the mitigation efforts Meta put in place to counteract the changes in iOS and rebuilding Meta’s advertising model,” the complaint summarizes.
These efforts, per the suit, included requiring less data in targeted ad campaigns; claims that Meta was building other sources that advertisers could use; having more onsite conversion opportunities for advertisers; implementing aggregated events management, with which Meta and advertisers could utilize aggregated campaign-level data for iOS users who opted out of being tracked; closing an apparent “underreporting gap”; and automation that would allow advertisers to leverage machine learning to discover audiences for targeted ad campaigns.
Ultimately, Meta failed to inform investors that the foregoing mitigation efforts were less effective than the company was letting on, the case claims. Upon the release of “weak” Q4 2021 financial results and “disappointing” 2022 revenue guidance, Meta disclosed that its mitigation efforts had not rendered the iOS privacy changes “manageable,” and instead that its ad business would take a $10 billion revenue hit, the lawsuit states.
According to the suit, these admissions caused more than 26 percent of Meta’s market capitalization to vanish in one day as the value of Meta stock slumped by more than $85 per share.
The lawsuit looks to represent all persons or entities who bought or otherwise acquired Meta securities between March 2, 2021 and February 2, 2022.
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