Here’s something for an investor to bring up on Facebook’s next earnings call on Wednesday: Apple’s upcoming IDFA changes could have a significant impact on Facebook’s revenue – as much as 7% of total revenue in Q2.
That’s according to Eric Seufert, a mobile consultant and investor and editor of Mobile Dev Memo.
Doing a little back-of-the-napkin math, 7% could translate into roughly $5 billion, depending on what Facebook reports in its future quarter.
Regardless of the specific number, though, “it’s definitely material,” said Seufert, who recently devised a novel formula to assess how much Apple’s move, set to take effect in the coming weeks or months, will hit Facebook’s bottom line.
The methodology
It’s trickier than it sounds.
Although Facebook has decried the negative effect an IDFA opt-in requirement will have on developers’ ability to monetize – and constantly refers to potential “targeting-related headwinds” when reporting its quarterly results – Facebook hasn’t publicly shared any hard numbers on the possible revenue impact of Apple’s move.
To put a number on it, Seufert looked at four different components: the percentage of revenue Facebook gets from mobile, a rough percentage of the revenue it gets from iOS devices, a projection of the opt-in rate for the AppTrackingTransparency prompt and an estimation of how much Facebook’s advertising and targeting efficiency will be impaired without ready access to the IDFA.
For opt-in rate, which can only be guessed at until Apple’s changes actually take effect, Seufert used dating app Bumble as a benchmark. Bumble, which is often one of Top 10 grossing App Store apps in the United States, noted in its recently filed S-1 that it expects somewhere between 0 and 20% of people to grant IDFA access.
“Bumble is a well-established, popular app that people inherently give a lot of data to anyway – it’s a dating app – and even they expect a very low opt-in rate,” Seufert said.
And so god help Facebook. Just look at what happened when Facebook recently said it planned to make a change to the WhatsApp privacy policy that would require users to share data with Facebook. There was a massive public outcry followed by a surge of interest in other messaging apps, including Telegram and Signal, and Facebook was forced to postpone the change. People are pretty wary of anything to do with Facebook and data sharing these days.
It’s even more difficult to determine how much Facebook’s ad efficiency will decrease.
For that, Seufert extrapolated based on Facebook’s comment, back in June, that CPMs on Audience Network would go down by 50% without the ability to run personalized advertising.
“Basically, Facebook is saying that if the data connection is severed between Audience Network and Facebook’s central servers, where they have all of their profiles, then there’s no way to match people and CPMs drop by half,” Seufert said.
And that’s a pretty decent proxy for the effect that IDFA deprecation is likely to have on Facebook’s family of apps.
Because if Facebook could easily use its own first-party data to power ad targeting, then it wouldn’t have stopped filling mobile web demand in Audience Network after it became clear that third-party cookies were on deathwatch. And it wouldn’t be sounding the alarm bells about IDFA loss, because there would be no need.
But that’s clearly not the case.
Facebook’s future
A 7% revenue hit in Q2 is only the base-case scenario based on Seufert’s modeling. In the best-case scenario, Facebook will only take a roughly 2% ding in the second quarter. In the worst-case scenario, though, the hit could be as high as 13% of revenue or more.
And so there’s no doubt that Facebook is planning for the worst. If Facebook wasn’t worried – or at the very least didn’t want to temper developer and investor expectations – it wouldn’t be as outspoken as it’s been on the probable aftershocks of the coming IDFA change.
(Google, by contrast, has barely made a peep on the topic, although that doesn’t mean they aren’t or shouldn’t be concerned. Although Google has access to a lot of search signal, its App Campaigns product in particular is “heavily exposed,” Seufert said.)
After a big gouge in Q2, Seufert predicts that Facebook’s prospects will improve throughout 2021 to be down revenue-wise by just under 4% by Q1 2022. This is only if it’s able to mitigate its revenue loss in the third and fourth quarters through IRL experience with SKAdNetwork and greater investment in contextual.
“The question will be how much better will they get at doing contextual targeting in that time,” Seufert said. “They’ve probably got an army of data scientists pointed at contextual optimization problems right now.”
Zooming out, Facebook is also making larger moves to accelerate its strategy of folding user interactions more deeply into its apps, including Instant Games, Facebook Watch, Facebook Shops and Instagram Shopping, Seufert said.
“All of that is part of a tectonic shift that’s been happening in the background, and the [CPM] price recovery piece is a part of that,” he said. “Facebook will lose less efficiency if it can use more of its own first-party data.”
