Meta Is Getting a Big AI Boost

by Jon Markman
By Jon Markman

Companies are constantly finding new ways to use AI to disrupt older business models. A familiar firm is taking this concept to the max.

The Financial Times reported Tuesday that Meta Platforms (META) has been using AI to circumvent the impact of user tracking policies. The change is worth billions for Meta shareholders.

Investors should buy Meta shares into weakness.

It has been a rough two years for executives at Meta. Privacy changes at Apple (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 the launch chose to willingly surrender this data.

In February 2022, Meta executives warned 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 their first sales decline in corporate history.

So, Meta is now relying on Advantage+, which uses AI to automatically generate multiple variations of ads, dynamically access their effectiveness, then serve even more of the best performers. It is pretty much an 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, however.

The big draw of Advantage+ for ad buyers is cost savings. Traditional digital advertising campaigns involves extensive split testing — the process of comparing two versions of a marketing asset and measuring the difference in performance — 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, but it also surrenders control from creators to Meta.

Investors should look past these concerns. AI is taking the world by storm, and 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 and rethink internet search engines. Growth has been phenomenal.

ChatGPT surged in January to 100 million monthly active users only two months after its launch. Digital Adoption notes this is the fastest ramp-up for any technology project during the past 20 years. Instagram needed 36 months to achieve this milestone, while it took TikTok nine months.

Advantage+ is also likely to grow quickly.

The project is being deployed across Facebook and Instagram, with databases comprising 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.

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 kneecapped Meta in 2021 when the iPhone maker, based in Cupertino, California, shut off access to its customers’ internet histories. Apple 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, which would be a gain of 31.4% from current levels.

That is all for today. I will be back with more soon.

Thanks for reading,

Jon D. Markman

P.S. Wednesday, March 1, Dr. Martin Weiss will reveal a new investor strategy specifically designed for a market plagued by volatility and inflation. This strategy produced 535 winning trades averaging 16% gains in just four days (no backtesting; those are actual trades). For more information, click here.

About the Contributor

Jon D. Markman is winner of the prestigious Gerald Loeb Award for outstanding financial journalism and the Society of Professional Journalists' Sigma Delta Chi award. He was also on Los Angeles Times staffs that won Pulitzer Prizes for coverage of the 1992 L.A. riots and the 1994 Northridge earthquake. He invented Microsoft’s StockScouter, the world’s first online app for analyzing and picking stocks.

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