Facebook Parent Meta Reports First-Ever Revenue DropJuly 28, 2022
Facebook’s parent company Meta on Wednesday reported a revenue drop for the first time in its history as ad sales shrank amid growing economic concerns. The social media giant also missed earnings expectations for the second quarter.
In the April-June quarter, Meta reported revenue of $28.8 billion, a 1% decline from the same period last year. The company’s performance narrowly missed the $28.9 billion that analysts surveyed by Thomson Reuters had expected. Meta earned $2.46 per share, missing expectations of $2.56 per share.
Meta’s first-ever revenue drop highlights the challenges the social media giant’s ad business faces as it braces for an economic slowdown. Advertisers are pulling back amid growing concerns that the world economy could enter a recession. A strong dollar weighs on the value of overseas revenue. And marketers question the effectiveness of ads because Apple now allows users of its products to opt out of tracking.
Meta has trimmed costs and frozen some hiring to offset the revenue challenges. The company’s expectations for the third quarter were also lower than analysts expected. Meta said it anticipates that revenue will be in the range of $26 billion to $28.5 billion, which is below expectations of $30.5 billion.
“We seem to have entered an economic downturn that will have a broad impact on the digital advertising business,” Meta CEO Mark Zuckerberg said in a call with analysts. “It’s always hard to predict how deep or how long these cycles will be, but I’d say that the situation seems worse than it did a quarter ago.”
The advertising slowdown comes as Meta continues to spend on its vision for the metaverse, virtual spaces where people can work, play and socialize. But investing in products such as virtual reality headsets and video chat devices isn’t cheap. The tech giant’s metaverse business lost $2.8 billion in the second quarter. On Tuesday, the company said it will raise the price of its Quest 2 headsets by $100 in August.
At the same time, the company is also battling more competition from apps such as short-form video platform TikTok and photo-sharing app BeReal. Meta still makes most of its money by selling ads on Facebook and its photo- and video-sharing app Instagram.
But as Facebook and Instagram make changes to compete with TikTok, that’s upsetting some of its users. Instagram has been testing a full-screen feed that looks more like TikTok. On Monday, celebrities Kim Kardashian and Kylie Jenner shared a meme urging the company to stop trying to imitate the popular video app and focus on photo sharing. Instagram CEO Adam Mosseri said in a tweet Tuesday that the platform will continue to support photo sharing but that he believes the app will be filled with more videos over time.
Insider Intelligence principal analyst Debra Aho Williamson said she thinks some of the “angst” among Instagram users about a possible redesign of the feed will “blow over,” noting there have been other times when the company has survived user backlash.
“But the hubbub makes crystal clear that Instagram needs to get this (user interface) change right, or risk losing some of its biggest fans,” she said.
Zuckerberg said the company is still focused on helping people connect with friends and family. Social media users, he said, are discovering interesting content in their feeds and then messaging that content to friends.
“This creates this flywheel of discovery and then social connection and inspiring people to create more content themselves,” he said. The company said it’s seen a more than 30% increase in the time people spend engaging with its short-form video feature Reels across Facebook and Instagram.
In the second quarter, 2.88 billion people used one of Meta’s apps such as Instagram and WhatsApp daily, a 4% increase compared with the same period last year.
The company is also making more leadership changes. Meta’s chief financial officer, David Wehner, will take on a new role as Meta’s first chief strategy officer, overseeing the company’s strategy and corporate development. Susan Li, the company’s vice president of finance, will be promoted to CFO. Sheryl Sandberg, who announced in June she was stepping down as the chief operating officer, had her last earnings call on Wednesday. She will remain on the company’s board of directors.
Meta’s stock dropped by more than 4% in after-hours trading to $161.86 per share.
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