Facebook parent company Meta reports decline in revenue
Mark Zuckerberg warns of the impact of the economic downturn on digital advertising spending in a grim forecast
Meta has blamed macroeconomic pressures for its first quarterly year-over-year revenue decline, giving investors a gloomy outlook for the coming months as advertisers scale back spending.
Meta, formerly known as Facebook, said Wednesday that its revenue for the April-June period was $28.82 billion, down 1 percent from the same period in 2021. Analysts had expected sales of $28.92 billion, according to consensus data compiled by FactSet.
Speaking to investors, CEO Mark Zuckerberg painted a bleak picture for the rest of 2022. "We appear to have entered an economic downturn that will have a broad impact on the digital advertising business," he said.
"And it's always hard to predict how deep or how long these cycles will be. But I would say the situation looks worse than it did a quarter ago."
Like many other big tech companies, Meta's currency pressures weighed on earnings, particularly the euro's weakness against the dollar. Excluding currency effects, the company said revenue would have increased 3 percent year over year.
The average price per ad fell by 14 percent in the reporting period compared to the previous year. Speaking to investors, outgoing Chief Operating Officer Sheryl Sandberg said the company is still in an "early" stage of figuring out how to counteract the impact of Apple's recent privacy changes, which include stricter controls over the amount of provide data collected from users for the purpose of ad targeting.
Meta's results were in line with a trend of underperforming the major players in online advertising - the business model that underpins much of the internet economy.
Snapchat owner Snap's shares fell 25 percent last week after the company missed analysts' expectations and advertisers cut budgets. Twitter's ad revenue fell 1 percent in the second quarter, while Wall Street had expected growth of 11 percent.
The largest provider of online advertising, Google parent Alphabet, blamed a fall in adspend on Tuesday after earnings from video-sharing site YouTube fell short of expectations. Alphabet's overall revenue is growing at its slowest pace in two years. However, shares of the search engine group rose 8 percent on Wednesday as results were better than analysts had feared.
Meta's net income fell to $6.69 billion from $10.39 billion a year earlier. Wall Street had expected a profit of about $7 billion. Total costs and expenses increased by 22 percent. Despite the announcement of a hiring freeze, the workforce grew 32 percent year-on-year, and Zuckerberg said he would delegate decisions about job cuts to individual team leaders.
The company said it expects revenue for the current quarter to be between $26 billion and $28.5 billion, down from the $30.4 billion analysts were expecting, according to numbers from S&P Capital IQ.
"This outlook reflects a continuation of the weak advertising demand we experienced in the second quarter, which we believe is being driven by broader macroeconomic uncertainty," said Chief Financial Officer David Wehner.
Meta's shares fell about 3 percent in after-hours trading.
Zuckerberg used the results announcement to say more about Sandberg's succession plan, which will leave the company in the fall. Wehner, a 10-year meta veteran, will fill the newly created position of Chief Strategy Officer. Susan Li, who has been with the company for 14 years, is promoted from vice president of finance to chief financial officer.
When Sandberg joined the company in 2008, it had around 100 million users. Today, the meta-app family, which also includes WhatsApp and Instagram, has 3.65 billion monthly active users, up 4 percent year-on-year. The number of daily active users is 2.88 billion.
Those numbers are being closely watched as the company faces backlash over recent changes to some of its products, particularly its efforts to urge users to consume Reels, its new short-video product that aims to compete with the fast-growing TikTok .
Meta said Reels is generating $1 billion in annual sales, but the switch has met significant friction. The Instagram app recently changed to prioritize more videos, often from accounts that a user doesn't follow or from advertisers.
On Wednesday, Zuckerberg signaled that the company would maintain this strategy for all of its apps.
"Roughly 15 percent of the content in a person's Facebook feed and slightly more than that in their Instagram feed is recommended by our AI," he said. "We expect these numbers to more than double by the end of next year."
Among the many critics of the switch was socialite Kim Kardashian, who published a post on the platform calling on the company to "make Instagram Instagram again." With more than 320 million followers, Kardashian is one of the most well-known personalities of the app.
Her denial, which was also shared by her half-sister Kylie Jenner, prompted a response from Instagram's executive director Adam Mosseri. He shared with users that he believes video will become the focus of Instagram. "The world is changing fast and we have to change with it," he said.