Meta sees weak ad demand but conversions are up

Meta’s latest results announcement point to the areas in which Facebook needs to strengthen and seek growth in its advertising business – now surrounded by investor-pleasing mentions of AI.

The ad demand environment according to Meta

• Q4 was, as expected, a period of weak ad demand, which Meta puts down to an uncertain and volatile macroeconomic environment.
• That uncertainty particularly hit the spending of its vitally important small and medium-sized business user base.
• Ad impressions grew 23% in Q4 year on year.
  
• Advertisers also saw 20%-plus more conversions than in the year before. 
• Combined with the decline in cost per acquisition, this resulted in higher returns on ad spend. 

The ad future 

Meta sees opportunities for continued gains in the near and medium-term. CFO Susan Li explained on an earnings call that AI investments are “powering a lot of this work as we continue to improve ads ranking and enable increased automation for advertisers to make it easier for them to run campaigns and use our systems to optimize their performance”.

A significant aspect of the company’s ad strategy now is to “bring conversions on site”, Li said, adding that work and investment on these kinds of ad formats is ongoing. 

AI to the rescue

“AI, it’s the foundation of our discovery engine and our ads business,” CEO Mark Zuckerberg explained on the same call (in passing it’s telling that the word metaverse arose just seven times versus AI’s 29 mentions during the call). “We also think that it’s going to enable many new products and additional transformations in our apps,” he added – a reflection of the end of tracking across apps and a focus on new measurement techniques.

Also ongoing is work on generative AI, where Zuckerberg acknowledged challenges in achieving scale and efficiency.

What it all means 

What is clear from Meta’s Q4 results is that, following an extended period of being at the mercy of external headwinds, the company has managed to regain control of the narrative, after last quarter’s difficult results.

Its work on AI looks to growth rather than toward Apple’s rule changes; its work on Reels no longer looks like it’s desperately chasing TikTok’s runaway growth; advertiser demand may be diminished, but it has measurement systems in the pipeline to get some of it back; the metaverse remains expensive but is currently – and thankfully for Meta – overshadowed by the other stories.