Scotiabank is out with a note today on Meta and it highlights a slate of problems in the company’s core business: Advertising.
It paints a picture of Meta that should worry bulls more than the macro backdrop does.
Scotia said that 25% of the expert’s advertising clients are either pulling back or walking away from META entirely because its tools are broken and the AI rollout hasn’t worked.
The AI product is called Advantage+ and the complaints are specific and getting louder. The report said it keeps auto-enabling without warning or explanation, forcing advertisers into campaigns they didn’t choose. Worse is that AI-generated creative is producing embarrassing errors.
An example they cite:
“An AI created ad for a
restaurant change advertising chicken pot pie and pot roast advertised marijuana.”
AI image – not an acutal ad but what Scotia describes
That’s bad but they also note the core targeting functions aren’t working. They say anti-discrimination rules materially reduce targeting effectiveness—driving budget
reallocation away from META entirely for some advertisers.
“This has been a problem for nearly
a year but the problems got far worse in February and salespeople keep being laid off resulting in
no customer support,” the report says.
Meta’s response? Continued sales team layoffs, leaving advertisers with nobody to call when things break, according to the report. That’s a dangerous combination — platform problems escalating while support capacity shrinks.
Shares of Meta are down 13% this year though lately it has hinted at an upcoming model and that will be a closely watched. It’s the first one led by Alexandr Wang after Meta invested $14.3 billion for a 49% stake in Scale AI and made Wang its Chief AI Officer. That move has already been panned but could turn into a disaster if the upcoming model flops.
Compare that to Google, where spend is growing around 5% with stable share and where the expert in the Scotia report specifically flagged superior sales and support as a competitive advantage. Search is also inherently more defensive in a macro slowdown because it captures intent — advertisers cut top-of-funnel social spend before they cut search.
In terms of their AI product though, the results so far aren’t as promising as you’d hope.
“AI Max” adoption is
being aggressively pushed by GOOG salespeople; tests surprisingly showed slightly higher
CPCs and slightly lower ROAS vs. legacy campaigns though the changes were minor – mostly
seen as a non-issue because it seems to be clearly designed to drive SMB spend, not agency
assisted large advertiser business
Advertising should be a killer app for AI but so far these indications aren’t great.
On the macro side, they note that travel is beginning to struggle and highlight that cruises are strong, while international air travel is weakening.
“TSA problems plus energy costs and the
war have forced our expert to halve his previous 6% growth prediction for the category this
year to just 3% y/y,” the report says.
