Tech, digital advertising trends in focus after a volatile week.
Click any of the links above for free access to Aiera’s transcripts of the earnings calls, all of which contributed to the creation of this report.
COO Sheryl Sandberg displayed negative tonal sentiment while discussing the longer-term headwinds the company is facing related to Apple iOS changes.
CFO Ruth Porate displayed positive tonal sentiment responding to a question about the company’s Q4 ad strength and, particularly, YouTube.
CEO Jim Farley exhibited negative tonal sentiment while detailing the company’s plans to reach 600,000 annual electric vehicle capacity and their visibility around securing necessary parts like extra batteries.
Last week, CEO Dustin Moskowitz disclosed a significant purchase of ASAN shares. This follows positive text/tonal commentary from the CEO on last quarter’s earnings call as it relates to Asana’s conversion, adoption, and retention KPIs.
%20(2400%20%C3%97%201000%20px).png)
Relative to last quarter, Apple/iOS were more in focus on Meta’s earnings call than other digital ad names reporting this week. Although this topic certainly received attention on Snap’s earnings call too, it was notably less discussed than on the Q3 2021 call. Meanwhile, there was essentially no mention of Apple and iOS on the Pinterest and Alphabet earnings calls, underscoring the differences in the respective advertising models.
“And with Apple's iOS changes and new regulation in Europe, there is a clear trend where less data is available to deliver personalized ads.”
“Throughout 2021, we saw solid growth, which continued in Q4. But there were a number of dynamic factors that created headwinds for us this past quarter in addition to those Mark described around competition and our shift to short-form video. We were lapping a period of strong demand in 2020 that benefited from very strong growth in online commerce, which has since slowed. Q4 was also the first holiday season after Apple's iOS changes, which have had an impact on businesses of all sizes, especially small businesses who rely on digital advertising to grow. This will continue to be a factor in 2022.”
“The second area underneath the measurement challenge is really -- are really data delays. As part of the iOS changes, we and many other ad platforms, we receive less granular conversion data on a delayed basis. And advertisers shared with us that this makes real-time decision-making, especially difficult, and that's particularly important during the holiday period, where people are often spending a lot and really monitoring their ads and adjusting spend not even on a daily basis, but often on an hourly basis. And that was one of the challenges we faced during this holiday quarter.”
“On the pricing side, we expect growth to be negatively impacted by a few factors. First, we will lap a period in which Apple's iOS changes were not in effect, and we anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes.”
“On the direct response side, we continue to work through challenges presented by Apple's ATT related changes, and we are making solid progress. As anticipated, on the brand side, macro headwinds related to supply chain disruptions and labor disruptions materialized and remain unresolved in the new year. Despite all of this, we continue to onboard new advertisers which drove our active advertiser count to another all-time high.”
“Our sales team is working hard to help advertisers adapt to the new measurement paradigms brought about by Apple's iOS privacy-related changes. Our advertising partners who prefer to leverage lower-funnel goals, such as in-app purchases, have been most impacted by these changes. We are seeing these advertisers migrate to mid-funnel goals where they have greater visibility such as install or click. Advertisers who optimize via web-based goal-based bids or GBBs have been less impacted, given that many of them have adopted the snack pixel. Many of our advertisers have enabled both Apple's SK Ad Network or Scan as well as our own first-party measurement solutions, which we broadly refer to as Advanced Conversion, or AC. While Scan has benefits and its ability to report DDuped results across multiple platforms, AC offers our performance advertisers much more flexibility and more advanced features. We continue to improve Advanced Conversions with features such as estimated conversions, which augments observed conversion data with real-time data to help in better decision-making.”
[READ ALSO] How the Apple iOS 14 Release May Affect Ads and Reporting (Facebook)
“I really do believe that we have a pretty unique place in the market. And I touched on it before, but I can go into a little bit more detail. First, there's a huge audience that's coming to Pinterest for something that's fundamentally different from what they come to other platforms. They're not coming to connect with friends. They're actually coming to envision their future and to plan for it. And increasingly, we're getting better and better at helping them do that planning, at connecting to the people that can share their knowledge and the inspiration to advance that and then eventually connecting to the retailers into the individual products they need. I really think that planning your future, that's a fundamental human need. That's not going away. And we're laser-focused on targeting that need above all the other ones. The second thing I'd say is that Pinterest sits at this pretty interesting intersection of a few trends that are really secular growth trends in the industry. Commerce is one of those. And we have a lot of people coming with specific intent to do something, but they may not have settled on the specific product they're looking for. And I think that space of shopping, not just buying but actually shopping, discovering what you're looking for, finding something that aligns with your taste, that's still quite open.”
“Philipp will talk in great detail about our advertising business. which also benefits from our investments in AI. It's been a very strong quarter for us. Our teams have helped millions of businesses of all sizes and launched dozens of important features to help them get the most out of their online marketing spend. These businesses are the backbone of our global economy and the heart of our community. So helping them thrive is more important than ever.”
“So the Chrome team has been really focused and working independently on privacy sandbox, which you all know is our initiative to build privacy preserving on device technologies that will power the future of digital advertising and obviously, as a result, the Freedom. Just last week, we announced our new proposal called topics. And topics was informed by our own learnings plus white spread, let me call it, community feedback from our earlier flock trials, and we'll now actually replace our flock proposal. I urge you all to read last week's blog for the details, But basically, the topics API will allow advertisers to show relevant ads to people based on their interest inferred from the website, they visit all in a more private way for users. And from an advertiser perspective, which is a big part of your question, it's obviously way too early to share more because we're just opening this up to the world. We expect to make it available for testing by the end of Q1, but we're really focused on designing for both parties from an advertiser and a privacy point of view and are committed to making sure goals are met on both sides.”
“The second area related to this is that we are in the middle of a transition on our own services towards short-form video like Reels. So as more activity shifts towards this medium, we are replacing some time in news feeds and other higher monetizing services. So as a result of both competition and the shift to short-term -- short-form video as well as our focus on serving young adults over optimizing overall engagement, we're going to continue to see some pressure on impression growth in the near term.”
“On the impression side, we expect continued headwinds from both increased competition for people's time and a shift of engagement within our apps towards video services like Reels, which monetize at lower rates than Feeds and Stories.”
“Furthermore, with the continued distribution and placement of Idea Pins during the quarter, we estimate that the negative impact to our fourth quarter year-over-year revenue growth was in the mid-single digits, similar to the third quarter. This impact was factored into our guidance for the fourth quarter.”
“At a high level, the macro headwinds we anticipated entering the quarter materialized largely as we expected, but our direct response advertising business began to recover from the impact of the iOS platform changes quicker than we anticipated. The macro headwinds included supply chain disruptions and labor-related factors, which impacted our brand advertising business most directly with the consumer packaged goods and restaurant sectors of the brand business being impacted most significantly. These headwinds and their impact on growth rates for upper funnel objectives commonly utilized as part of brand campaigns such as impressions and views were the largest contributors to the sequential decline in year-over-year growth in Q4. Excluding the restaurant and CPG sectors, revenue from our brand advertising business grew at approximately 49% year-over-year, indicating what we believe to be continued strong underlying momentum in areas not impacted by the supply chain and labor issues noted earlier.”
“I'd like to provide some additional color. Strength in the quarter came from large retailers, mid size and managed small advertisers and international markets. This was offset by muted demand from CPG advertisers, who continue to face pressure from supply chain issues.”
“We've also heard from advertisers about other macro trends that contributed to the headwinds in Q4, including global supply chain disruptions, labor shortages and inflationary pressures. A number of industry reports have pointed to people shopping earlier in the holiday season to avoid potential supply chain issues and shipping delays. This is in line with the behavior we saw from advertisers, many of whom front-loaded their spend earlier than usual.”
“…[W]e're hearing from advertisers that macroeconomic challenges like cost inflation and supply chain disruptions are impacting advertiser budgets.”
[READ ALSO] Advertisers Grappling With Supply Chain Disruptions (Business Insider)
[READ ALSO] The Rise Of Short-Form Video: How TikTok Is Changing The Game (Forbes)
“I think what we said about overall kind of user growth is we're certainly seeing an impact from strong competition, particularly with younger audiences. So that's true, and we're kind of seeing that globally. If you look at kind of the overall user growth landscape for the fourth quarter, we're seeing MAU and DAU in the U.S. and Canada, sort of bounce around at sort of expected and indicated given our high level of penetration. And then if you look at the Rest of World, we've seen some headwinds there, kind of a little bit unique in the quarter in areas like India, where we saw data plan pricing increase lead to slower growth there. So that's another kind of some unique elements of the quarter on that front.”
“Reels and short-form video overall are very engaging. And a lot of what we're seeing is that there is -- people are spending a lot more time. And I think I mentioned this in my script upfront that it's growing very quickly. This is already the biggest contributor to engagement growth on Instagram. I think it's one of the biggest contributors that we're seeing to positive engagement on Facebook too already. But I think, going back to the last question, there was a question on what -- are there any factors here that will -- what are the similarities and differences to what we've seen in the past. The big similarity is that this is certainly not the first time that we've gone through a major format evolution. And what these transitions all had in common from desktop feed to mobile feed, feed to Stories and now to Reels in the beginning, our ad system and business are not as tuned for the new format, so as the engagement of the new thing starts to replace some of the engagement and the old thing, it creates a near-term headwind for revenue, but it's not that part, at this point, now is not that big of a concern for us. I mean it makes some of the stuff not as clear in the near term, but over the long term, we're pretty optimistic about that.”
“On the shift to short-form video, I want to emphasize that while we're going through a transition, we're optimistic. Right now, Reels monetizes at a lower rate than Feeds and Story, but we expect this to improve over time. We made successful transitions before. The shift from web to mobile and then another shift from Feeds to Stories. We have a playbook here. The experience we have for monetizing stories is directly applicable, so we're not starting from scratch. We think that over the long term, this shift will be a success, for us and our partners, too.”
“On a global basis, compression growth benefited from ad load increases and user growth, this was partially offset by engagement-related headwinds as we faced increased competition for people's time and a shift of engagement within our apps to video services like Reels, which show fewer ads than Feed or Stories today. Pricing growth was broad-based across regions. Worldwide pricing growth slowed from the third quarter as we lapped stronger growth in the year ago period and face currency headwinds. Pricing was also negatively impacted by advertisers facing challenges from macroeconomic factors and measurement targeting headwinds.”
“I wanted to take a couple of minutes to discuss fourth quarter engagement, particularly in the U.S. Our U.S. monthly active users declined 12% year-over-year to 86 million, primarily due to pandemic easing relative to the year ago quarter. We also believe that time spent on competing video app platforms contributed to the year-on-year declines.”
“Furthermore, our monthly active users were negatively impacted from lower search traffic due to Google's November algorithm updates. In fact, more than half of the Q3 to Q4 sequential decline in U.S. monthly active users was attributable to Google's algorithm updates starting in mid-November. We're examining the overall impact from recent search algorithm changes as it appears to be more persistent than we've seen historically. Our teams are working diligently to understand this, but it may take some time. Looking at users by platform, U.S. monthly active users coming to Pinterest from the web, desktop and mobile web declined around 30% year-over-year while U.S. monthly active users coming to Pinterest from mobile apps, who account for a significant majority of our impressions and our revenue, declined around 6% year-over-year.”
“Let's transition to retail, where we had a terrific quarter. Since the beginning of the pandemic, we've seen ongoing shifts in consumer spending patterns. Pre-COVID, each year, we saw increased spikes in demand between Black Friday and Cyber Monday. What's interesting is that in 2020, and again in 2021, we actually saw shoppers start shopping earlier and spending more throughout the quarter. In Q4, we also saw a parallel lead year-over-year retail query growth with hobbies and leisure close second. I've said it before, I'll say it again, the future of retail is omnichannel. And we continue to invest in new features and next-gen experiences so merchants and shoppers can benefit.”
“If you just look at this year, for the full year, we finished at 12% of revenue, 15% in Q4, and that was up from 9% of revenue last year. So we saw a nice growth there. Clearly, we saw a lot of strength in the advertising business coming out of 2021, which we continue to see in the start of 2022. I would also kind of echo what Daniel said about international. I think we talked about this last quarter about an investment push we're making to actually expand our advertising presence outside the U.S. We've had a blueprint in the U.S. that has worked really well for us, and you've seen that in the growth we have, both on the music side and the podcasting side. So we expect that that investment we're making throughout 2022 will drive significant improvements on the advertising monetization outside North America.”
“In Q4, we experienced better-than-anticipated demand from direct response advertising partners. And our Direct Response advertising business was once again the largest driver of our growth. We observed that advertisers began to recover from the initial disruption caused by the iOS platform changes and the resulting impact on the ability of our advertising partners to measure the results of their advertising investments.”
“I mean the priorities with advertising are -- at a high level, it's improved the tool usability. We think there's great feedback loops with customers, as Brian mentioned, to keep building and making that better. That results in building more relevancy and better engaging experiences. And again, the more we can interact with the advertisers, the customers and learn and have more opportunities to hear from them and understand that we can build better analytic tools, provide better measurement, give them better insight in performance. So really focused on serving brands. And it's in the sponsored ad space, but we've talked about video advertising as certainly a great opportunity. And as we've got properties like Fire TV, IMDB TV, Twitch, live sports, a lot of exciting things that have been going on in the live sports and certainly to come this year as well, both in the NFL here in the U.S., but overseas in a number of properties, really excited to kind of work with folks. And again, this is about delivering good recommendations to customers and helpful when they're making their purchase decisions and giving them information around that. And that, in turn, of course, helps the advertisers as well and have a great result. So I think that's 1 area that we're excited about. Longer term, demand-side platform opportunities with Amazon's is something that we're continuing to work on and refine and again, focus on the customer as we always do.”
“Now I'm confident that leaning harder into these trends is the right short-term trade-off to make in order to get long-term gains. And we've made these types of transitions before with mobile feed and stories, where we took on headwinds in the near term to align with important trends over the long term. And while video has historically been slower to monetize, we believe that over time, short-form video is going to monetize more like Feed or Stories than like Watch. So I'm optimistic that we'll get to where we need to be with Reels too.”
“Now it's clear that short-form video will be an increasing part of how people consume content moving forward. And Reels is now our fastest-growing content format by far. It's already the biggest contributor to engagement growth on Instagram and it is growing very quickly on Facebook too. And as we continue to improve the tools for creators, ranking for the people watching. And as we roll out the product everywhere across the world, we expect that this will continue growing quickly. So looking ahead, we're investing in simplifying video across Instagram, building more great creative and monetization tools for creators and helping more people discover and interact with relevant Reels.”
“We are also seeing exciting momentum at YouTube. YouTube Shorts continues to drive significant engagement. We just hit 5 trillion all-time views and have over 15 billion views each day globally. This is helping our creator community reach newer and bigger audiences. In fact, more people are creating content on YouTube than ever before. Last year, the number of YouTube channels that made at least $10,000 revenue was up more than 40% year-over-year, and we are continuing to improve support for artists and creators. More creatives than ever are earning money from our non-ads products like Super Chat and channel memberships. And the Shorts fund is now available in more than 100 countries.”
“YouTube's ability to drive both massive reach and action is becoming more clear to more advertisers. In a recent study, DR advertisers who added YouTube branding formats not only drove increased reach, but also averaged 9% more conversions. At the same time, we see more brand advertisers adding action, like Nike Korea, which saw higher conversion rates and drove 50% plus incremental reach by adding video action. Another huge focus for us is continuing to deliver for our partners and key ecosystems, all while delighting users.”
“AWS added more revenue year-over-year than any quarter in its history, and it's now a $71 billion annualized run rate business, up from $51 billion run rate 1 year ago.”
“And in terms of cloud, if we step back at the comments that both Sundar and I made, overall, we're very pleased with the ongoing progress in the business, and that's reflected and the revenue growth, as you noted, our backlog, the breadth of customer wins, the industry verticals. Our view is that we're in an extraordinary time to help customers digitally transform their businesses. And the key thing is we believe it remains very early innings. So as a result, our focus remains on revenue growth and investing as needed as we're looking over the long term. We're continuing to invest aggressively. And it's in our go-to-market capabilities. It's our product. It's our infrastructure. We do remain focused on the longer-term path to profitability, but we are continuing to invest here as we're seeing early innings and pleased with the ongoing progress.”
“In 2022, we expect a meaningful increase in CapEx. In technical infrastructure, servers will again be the largest driver of spend. With respect to office facilities, after fairly muted CapEx over the past 2 years, we are reaccelerating investment in fit-outs and ground-up construction.”
“Let's talk a little bit about capital expenditures… So when you look at those numbers and how they've grown over the last few years, I'll give you the proportions, which I'm not sure we've initially shown before is about 40% -- just under 40% of that CapEx is going into infrastructure, most of it's feeding AWS, but also certainly, Amazon is a large customer of that as well as we build and structure for ourselves directly or through AWS. About just under 30% is fulfillment capacity building warehouses -- warehouse only, not transportation. And then just under 25% is transportation capacity and building out our AMZL network, principally globally. The remaining 5% or so is small things like offices and stores and other capital areas. But those are the 3 main areas. If I look to the future, we're still working through some of our plans for 2022, but it's coming into focus a bit. We see the CapEx for infrastructure going up. We still have a very fast-growing business that is growing globally, and we're adding regions and capacity to handle usage that still exceeds revenue growth in that business. So we feel good about making those investments.”
“Despite lapping 2020's extraordinary sales growth, we continue to see an increase in customer demand and sales during the remainder of 2021, even as the economy opened back up. For Q4, Amazon's 2-year annual compounded growth rate was 25%, excluding impacts from foreign exchange, consistent with our rate in the third quarter. We've invested significantly to keep pace with this demand, including nearly doubling our operations capacity in the past 2 years, expanding our fulfillment center footprint while adding significant transportation assets to ensure fast on-time delivery. There are now 1.6 million Amazon employees worldwide, also doubling in the 2-year period.”
“On the fulfillment center side, that's about 30% of the spend in the last 2 years. We see that moderating and that will probably now match growth of our underlying businesses. I think there's always things that can tick up that growth rate, things like expansion of our FBA business, expansion of cube that maybe not be different than the square footage. So there's -- we want to have capacity to have a healthy retail and FBA business because that fuels prime in 1-day delivery and 2-day delivery and same-day delivery. So that's very important. But we see the Fc piece likely moderating this year. And then the third piece is transportation. We still see additional levels of investment in that in 2022.”
“On the supply chain, there's specific things that I think we all see in the supply chain where we're waiting for products. But as far as Amazon is concerned, we did a lot to combat the supply chain issues we saw in Q4 or anticipated in Q4. We bottled the product ahead. We work with vendors to secure inventory early, in some cases, paid earlier, which has a working capital impact. We also worked very hard to open up channels of -- existing channels of input into the country, whether it was port capacity or vessel capacity. So we did everything. We knew how to as far as trying to get more capacity in a constrained market. And we think it worked for our customers in Q4 as challenges remain in '20, I wouldn't say we've totally passed that, but we don't expect it to be a big issue in Q1.”
“As we mentioned in the last earnings call, we did see more than $4 billion in costs from inflationary pressures and loss productivity and disruption in our operations. The inflation primarily relates to wage increases and incentives in our operations as well as higher pricing from third-party carriers supporting our fulfillment network. Loss productivity and network disruptions were driven primarily by labor capacity constraints due to challenges in staffing up our facilities for peak. This is driven by the very tight labor market in the second half of 2021 and more recently by the emergence of the Omicron variant. We do expect these cost challenges to persist into Q1, albeit adjusted for lower seasonal volumes relative to the fourth quarter.”
“But all in all, the challenge in Q4 was to increase the staffing and we said we wanted to add 150,000 people or more. We added net-net of about 140,000 in the quarter, 273,000 in the second half of the year. So as you turn the page into 2022, we feel good -- better about labor except Omicron has kicked up, and now you have a different type of labor issue where there's a lot of people who are on leave of absences and short term as they work to have a positive test on COVID and can get back into the workforce and protect their fellow workers. So there's instances where you're paying twice or 3 times for the same labor hour. If someone is on leave you're paying them and you're also paying potentially for someone who's covering the shift over time. So there's cost pressure in Q1. I think the good news is that the labor challenge is not as great in Q1 as it is in Q4, Q3 and Q4. So we're hopeful about that. We have to work to now make our operations more efficient as we get staffing levels up. And we're going to plow a lot of our effort into increasing our transportation speeds and beating our pre-pandemic levels.”
“And finally, we will increase the price of Prime in the United States in Q1. We continue to make Prime better. In recent years, we've added more product selection available with fast free unlimited shipping, more exclusive deals and discounts and more high-quality entertainment, including TV, movies, music and books.”
“Since 2018 in the U.S., availability of same-day delivery has expanded from 48 metropolitan areas to more than 90. Items available for Prime free shipping have increased over 50%. And members have saved billions of dollars shopping on Prime days. It's all on top of new program benefits like prescription savings and fast free delivery from Amazon Pharmacy and the continually growing Amazon music catalog for Prime members as well as Prime Reading and Prime Gaming. With the continued expansion of Prime member benefits, and the increased member usage that we've seen as well as the rise in wages and transportation costs.”
“Since the start of the year, our customers have been continuing to deposit funds into their accounts on a net basis, but they've been making fewer trades and in smaller amounts. In these first few weeks of the new year, we're seeing trading activity below what we saw in Q4 of 2021. However, in the few days leading up to our call, we've seen some higher levels of engagement, net deposits and trading versus the start of the year. It's too soon to say whether what we've seen these last few days will be a sustained trend or not. And so for Q1, we're anticipating that total net revenues will be less than $340 million, which assumes some incremental improvement in trading volumes versus what we've seen so far. At the top end, this implies a year-over-year revenue decline of 35%. As a reminder, in Q1 last year, we had outsized revenue due to heightened trading activity particularly relating to certain meme stocks.”
"Very near term we will continue to see increased retail interest in meme stocks but medium term, new regulations + retail investors getting burned when meme stocks collapse + gradual improvement of pandemic conditions will mean a cyclical reduction in retail interest in high-velocity stock trading generally, for a few years at least."
[QUESTION] “Ryan, I want to come back to your comments about the Permian. And I just want to ask you philosophically, are you concerned about the U.S. going back to that level of growth, given the recent history of growth for growth's sake? And we all know how Saudi responded to that in that global market, which despite the post-COVID recovery, still has a relatively pedestrian long-term growth outlook. And how does that play into your strategy?”
[ANSWER] “Yes, Doug, thanks. No, I am. I think that sits very -- not so much at the back of our mind, but right at the front of our mind, I am absolutely concerned about. I think the one change may be relative to late 2014 and '15, the last time we were kind of at these levels is just what is the spare capacity sitting in the OPEC+ group. It was quite a different number back at that point in time, and you can -- we can all debate what that number is. And the fact that the inventories are down quite a bit globally and certainly here in the U.S. So I think there's a little bit of time that we have associated with that. But certainly, if we're getting back to the level of growth in the U.S. that if you're not worried about it, you should be and be thinking about it.”
.png)