A new video by Inspired by Iceland pushes back against experiencing life through the “metaverse,” as described by Mark Zuckerberg during Facebook’s rebranding to Meta on Thursday, Oct. 28, 2021.
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Wall Street is bracing for disaster in online advertising.
Following disappointing results from Snap last week and a 28% plunge in the stock price that sent the company’s value to its lowest since early 2019, investors are now turning their attention to ad giants Meta and Alphabet as well as reports this week from Twitter and Pinterest. They’ll also hear from Amazon and Microsoft, which have big ad businesses of their own.
The flurry of reports comes at a time of extreme skepticism in web and mobile advertising. Facebook parent Meta shares are down more than 60% this year, and the company is expected to report a second straight drop in revenue. Alphabet, which has slid 30% in 2022, is forecast to report single-digit sales growth. Aside from one quarter at the beginning of the pandemic, that would mark the weakest period for Google’s parent since 2013.
The economic downturn and fears of a recession have many marketers reining in spending. At the same time, Apple’s iOS privacy change from last year continues to punish companies — notably Snap and Facebook — that have historically relied on user data to target ads.
“Sentiment in the online advertising space has softened of late, with more anecdotes of budget cuts as well as advertisers holding back some budget in hopes of a 4Q flush,” UBS analysts wrote in a report last week. “Looking into ’23, we think planning amidst this level of macro uncertainty sets the stage for below-consensus growth in ’23, even if macro does not significantly deteriorate from here.”
UBS said it would “reduce estimates and price targets across the online advertising group” due to both the economic environment and a strong U.S. dollar. Through discussions with digital ad agencies, the analysts said they learned that “many advertising directors are pulling back certain budgets, particularly among smaller advertisers.”
In Snap’s report on Thursday, the company said results are being hit by a combination of platform changes, economic challenges and competition. For a second straight quarter, Snap said it wouldn’t be providing guidance for the coming period because of difficulty in predicting the economic trajectory.
Digital ad stocks in 2022
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“We are finding that our advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures and rising costs of capital,” Snap said.
If the third quarter mirrors the second, Snap’s brutal report could spell dismal results for its industry peers. In July, Meta, Twitter, Pinterest, and Google all reported weaker-than-expected results following Snap’s miss.
Investors started planning ahead last week, sending Pinterest shares down more than 6% on Friday after Snap’s report. Twitter fell almost 5% and Meta dropped more than 1%. Alphabet rose over 1%, but still underperformed the tech-heavy Nasdaq, which jumped 2.3%.
CNBC’s Jim Cramer and the Investing Club said there’s a chance Snap’s poor results won’t reflect the overall online advertising market. Meta and Alphabet “have built multifaceted digital ecosystems” that dwarf the smaller Snap, thus making those companies “more immune from weaker digital ad spend,” the Investing Club wrote.
The industry drama this week isn’t limited to earnings reports.
Tesla CEO Elon Musk has until Friday to close his proposed $44 billion acquisition of Twitter if he wants to avoid a trial. After changing his mind on the deal multiple times and being sued, Musk said earlier this month that he wanted to complete the transaction at the originally agreed upon price of $54.20 a share. Twitter wants to make sure the financing is in place before backing off the lawsuit.
Twitter shares closed last week below $50, suggesting investors still aren’t convinced the deal will close. Meanwhile, the business has been struggling. Analysts are anticipating a drop in third-quarter revenue in the company’s earnings report, which is expected this week.
One bright spot in the online advertising space could be Amazon after its digital ad business grew 18% in the second quarter, topping all of the major players in the industry.
While retailers may be pulling back on spending on Facebook and elsewhere, Amazon is a stickier platform for them because people who use it are shopping for stuff. For companies to keep their brands visible on the largest e-commerce site, they have to pay the platform.
But even Amazon’s core business has suffered this year, with growth slowing dramatically from its boom days during the pandemic. Overall revenue expansion was in the single digits for three straight quarters and the stock is down 28% for the year.
By the time Amazon closes out Big Tech earnings week on Thursday, investors should have a much clearer picture of the online ad market and how much companies are tightening their belts heading into the holiday season.
A sign is posted in front of the eBay headquarters in San Jose, California.
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Shares of eBay soared 8% Wednesday as Meta said it will allow some listings to show up on Facebook Marketplace, its popular platform connecting consumers for local item pickups and more.
EBay stock reached its highest level since November 2021.
The rollout will begin with a test in Germany, France and the United States, where buyers will be able to view listings directly on Marketplace and complete the rest of their transactions on eBay, Meta said in a release.
The partnership could provide a boost to eBay’s marketplace business, which has struggled to compete with e-commerce rivals like Amazon, Walmart, Temu and even Facebook’s own marketplace platform that lets users buy and sell items.
EBay has recently embraced niche categories like collectibles and luxury goods to try and keep buyers and sellers returning to its site. CEO Jamie Iannone told CNBC in an October interview that shoppers were coming to the site, known for its used and refurbished goods, as they sought out discounts amid a rocky macroeconomic environment.
Meta’s move is an attempt to appease the European Commission, the executive body of the European Union, after the regulator fined the company 797 million euros ($821 million) in November for tying its Marketplace product to the main Facebook app.
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At the time, the Commission said that Meta’s bundling of Marketplace with Facebook could mean competitors are effectively “foreclosed” given the distribution reach of the platform. Facebook counts more than 3 billion users globally.
The Commission also said that Meta imposes “unfair trading conditions” on other online classified ads service providers who advertise on its platforms, especially Facebook and Instagram. It added that these conditions allow Meta to use data generated from other advertisers to benefit Marketplace.
Meta appealed the ruling at the time, saying that it “ignores the realities of the thriving European market for online classified listing services.”
“While we disagree with and continue to appeal the European Commission’s decision on Facebook Marketplace, we are working quickly and constructively to build a solution which addresses the points raised,” the company said Wednesday.
EBay touted its integration with Facebook Marketplace as a way for the e-commerce site to “increase exposure to our sellers’ listings, on and off eBay, as part of our strategy to engage buyers and deepen customer loyalty.”
Facebook in 2023 announced a similar partnership with Amazon that lets users browse and purchase products without leaving the app.
An Amazon employee works to fulfill same-day orders during Cyber Monday, one of the company’s busiest days, at an Amazon fulfillment center in Orlando, Florida, on Dec. 2, 2024.
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Amazon warehouse workers at a site in North Carolina will vote next month on whether to join a union, setting the stage for the company’s latest labor battle.
Workers at the Garner, North Carolina, facility will cast their ballots from Feb. 10 to Feb. 15, according to a Tuesday post on X by Carolina Amazonians United for Solidarity & Empowerment, the group seeking to organize staffers. Representatives from Amazon and the National Labor Relations Board didn’t immediately respond to requests for comment.
Known as CAUSE, the grassroots group led by current and former employees has been working to organize Amazon employees at the warehouse, which is located in a suburb about 10 miles south of Raleigh, for the past three years.
If the election is successful, the warehouse, known as RDU1, would be only the second Amazon site in the U.S. to unionize. Workers at Amazon’s largest warehouse in New York City voted to join the Amazon Labor Union in 2022, but the group struggled to negotiate a contract with Amazon, and last June, the ALU voted to affiliate with the Teamsters.
A handful of union elections were held at Amazon warehouses in the U.S. in recent years but employees have either rejected unionization or the results continue to be disputed in lengthy court battles. Last November, a federal labor judge ordered a third rerun election at an Amazon warehouse in Bessemer, Alabama, after ruling the company improperly interfered in the vote.
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CAUSE filed for a union election last month, saying in a press release that 30% of workers at the North Carolina site signed union authorization cards, which is the necessary threshold to trigger an NLRB vote. Organizers are seeking to boost wages and improve working conditions.
The union filing comes after Amazon delivery and warehouse workers went on strike at nine facilities last month to push the company to come to the bargaining table, according to the International Brotherhood of Teamsters, which represents the employees. The action was intended to snarl Amazon’s operations during the busiest holiday shopping period of the year, referred to as peak season. An Amazon representative told Reuters the company expected to see a limited impact on deliveries from the strike.
An artificial intelligence feature on iPhones is generating fake news alerts, stoking concerns about the technology’s ability to spread misinformation.
Last week, a feature recently launched by Apple that summarizes users’ notifications using AI, pushed out inaccurately summarized BBC News app notifications on the broadcaster’s story about the PDC World Darts Championship semi-final, falsely claiming British darts player Luke Littler had won the championship.
The incident happened a day before the actual tournament’s final, which Littler did go on to win.
Then, just hours after that incident occurred, a separate notification generated by Apple Intelligence, the tech giant’s AI system, falsely claimed that Tennis legend Rafael Nadal had come out as gay.
The BBC has been trying for about a month to get Apple to fix the problem. The British state broadcaster complained to Apple in December after its AI feature generated a false headline suggesting that Luigi Mangione, the man arrested following the murder of health insurance firm UnitedHealthcare CEO Brian Thompson in New York, had shot himself — which never happened.
Apple was not immediately available for comment when contacted by CNBC. On Monday, Apple told the BBC that it’s working on an update to resolve the problem by adding a clarification that shows when Apple Intelligence is responsible for the text displayed in the notifications. Currently, generated news notifications show up as coming directly from the source.
“Apple Intelligence features are in beta and we are continuously making improvements with the help of user feedback,” the company said in a statement shared with the BBC. Apple added that it’s encouraging users to report a concern if they view an “unexpected notification summary.”
The mistake was flagged on the social media app Bluesky by Ken Schwencke, a senior editor at investigative journalism site ProPublica.
CNBC has reached out to the BBC and New York Times for comment on Apple’s proposed solution to its AI feature’s misinformation issue.
AI’s misinformation problem
Apple touts its AI-generated notification summaries as an effective way to group and rewrite previews of news app notifications into a single alert on a users’ lock screen.
It’s a feature Apple says is designed to help users scan their notifications for key details and cut down on the overwhelming barrage of updates many smartphone users are familiar with.
However, this has resulted in what AI experts refer to as “hallucinations” — responses generated by AI that contain false or misleading information.
“I suspect that Apple will not be alone in having challenges with AI-generated content. We’ve already seen numerous examples of AI services confidently telling mistruths, so-called ‘hallucinations’,” Ben Wood, chief analyst at tech-focused market research firm CCS Insights, told CNBC.
In Apple’s case, because the AI is trying to consolidate notifications and condense them to show only a basic summary of information, it’s mashed the words together in a way that’s inaccurately characterized the events — but confidently presenting them as facts.
“Apple had the added complexity of trying to compress content into very short summaries, which ended up delivering erroneous messages,” Wood added. “Apple will undoubtedly seek to address this as soon as possible, and I’m sure rivals will be watching closely to see how it responds.”
Generative AI works by trying to figure out the best possible answer to a question or prompt inserted by a user, relying on vast quantities of data which its underlying large language models are trained on.
Sometimes the AI might not know the answer. But because it’s been programmed to always present a response to user prompts, this can result in cases where the AI effectively lies.
It’s not clear exactly when Apple’s resolution to the bug in its notification summarization feature will be fixed. The iPhone maker said to expect one to arrive in “the coming weeks.”