Companies are constantly finding new ways to use artificial intelligence to disrupt older business models. A familiar firm is taking this concept to the max.
The Financial Times reported Tuesday that Meta Platform (META) has been using AI to circumvent the impact of user tracking policies. The change is worth billions for Meta shareholders.
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Investors should buy Meta shares into weakness.
It’s been a rough two years for executives at Meta. Privacy changes at Apple Inc. (AAPL) in 2021 effectively removed third-party advertisement tracking on its devices. Under iOS 14.5, the mobile operating system used for iPhones and iPads, the only way for Meta to gather this important personalized information was by having users opt-in. They were presented with a scary disclaimer about privacy, personal information, and tracking.
It is not surprising that a study by Flurry Analytics found that only 2% of users at launch chose to willingly surrender this data.
Meta executives warned in Feb. 2022 that the iOS changes would lead to $10 billion in lost advertising sales, according to a CNBC report. For stakeholders, it was a mess, ultimately leading to $300 billion in lost shareholder value, jobs, and the first sales decline in corporate history..
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Advantage+ uses AI to automatically generate multiple variations of ads, dynamically access the effectiveness, then serve even more of the best performers. It’s a sort of all-in-one tool to personalize ads and make campaigns wildly more effective.
The proof is in the numbers.
The Financial Times notes that Advantage+ customers were generating roughly $7 in returns for each $1 spent on website commercial campaigns, a level comparable to the pre-iOS 14.5 changes.
There are some red flags for advertisers.
The big draw of Advantage+ for ad buyers is cost savings. Traditional digital advertising campaigns involve extensive A/B testing and tweaking by ad creators. This process can be time consuming, and costly, leading to less effective campaigns. Advantage+ automates a large part of this process, however, it also surrenders control from creators to Meta.
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Investors should look past these concerns. AI is taking the world by storm. Consumers are captivated by the innovation. They are not worried about how the sausage is being made.
OpenAI was founded by Sam Altman, Elon Musk and others in 2015 to chip away at the large lead Google built in AI research. Musk felt competition was required to shape the future of AI, including the way people interact with computers.
The most popular project from OpenAI thus far is ChatGPT, an AI chatbot. The software generates realistic, conversational responses to user inquiries by constantly refining data from its large language models. The goal of ChatGPT is to reimagine how humans interact with data, to rethink internet search. Growth has been phenomenal. ChatGPT surged in January to 100 million monthly active users, only two months after its launch. Digital Adoption notes that this is the fastest ramp for any technology project during the past 20 years. Instagram needed 36 months to achieve this milestone. It took TikTok 9 months.
Advantage+ is also likely to grow quickly. The project is being deployed across Facebook and Instagram, with databases comprised of 2.9 billion, and 1.2 billion users respectively. Those members will eventually see personalized digital ads, and ad buyers will derive the benefits of better targeting.
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Meta is disrupting its existing digital ad business with AI.
This is the nature of successful companies, even if the process is more convoluted than originally planned.
Apple knee-capped Meta in 2021 when the iPhone maker shut off access to its customers’ internet histories. The Cupertino, Calif.-based company later expanded its digital ad presence, with tracking turned on by default. Unsurprisingly, that business has grown rapidly.
Advantage+ will slow that growth. The AI software will also help Meta begin to grow again.
At $174.95 Meta shares trade at 15x forward earnings, and 3.9x sales. The stock is cheap by historical standards, and could trade back to $230 during the next 12 months, a gain of 31.4% from current levels.
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