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Meta Q2 Earnings: Facebook Parent Posts Its First Revenue Drop as a Public Company

New York
CNN Business

Facebook is in decline.

Meta, Facebook

reported revenue of $28.8 billion for the three months ending June, down 1% from the year-ago quarter and its first revenue decline of a year. year on year since its IPO in 2012.

The company’s profit fell much more sharply. Net profit in the quarter fell 36% year-on-year to nearly $6.7 billion, a huge reversal from a year earlier, when its profit doubled. Meta reported a 14% year-over-year drop in the average price per ad, a worrying sign as demand for online ads weakens due to the recent economic downturn.

The number of monthly active users on the Facebook app also fell slightly from the first quarter of 2022, from 2.936 billion to 2.934 billion. In a conference call with analysts on Wednesday, Meta CEO Mark Zuckerberg said the decline was expected and attributed it “to internet blockages related to the war in Ukraine.”

“The number of people using Facebook daily continues to grow,” he said.

Meta’s results follow weeks of worrying reports that the company is reverting to a stricter performance review process and seeking to boost worker productivity as it seeks to weather a period of slow growth. and fierce competition from new rivals such as TikTok. These challenges coincide with greater macroeconomic pressures, including rising inflation and fears of recession.

Zuckerberg said earlier this month that the company would cut plans to hire engineers by at least 30% this year, telling employees in a question-and-answer session that “this could be one of the worst downturns we’ve seen in recent history,” according to a Reuters report. In its earnings report on Wednesday, the company said it has “trimmed our hiring and overall expense growth plans this year to account for the more challenging operating environment while continuing to direct resources to priorities of our company”.

“A lot of teams are going to shrink so we can shift the energy to other areas of the business,” Zuckerberg said on the conference call.

Still, the company’s sales decline is expected to continue into the next quarter. Meta said it expects current quarter revenue to be between $26 billion and $28.5 billion. Even at the high end, this would mark a 1.76% drop from the previous year.

Meta pointed to declining revenue from its VR unit, Reality Labs, and continued weakness in demand for online advertising caused by economic uncertainty as factors driving the forecast. Other tech companies, including Twitter and Snap, are also facing tight ad budgets amid the economic downturn. Meta was already in trouble after Apple’s app tracking changes made it harder to target ads.

Meta shares fell as much as 5% in after-hours trading on Wednesday after the earnings report before rebounding somewhat.

Hours before the earnings report was released, the FTC decided to block Meta’s acquisition of VR company Within, alleging the tech giant was illegally trying to grow its “virtual reality empire”. While Meta called the injunction “wrong on the facts and the law,” it highlights potential regulatory hurdles the company faces in growing its virtual reality business.

The stakes are high for the company with this particular division. Meta has bet its future on a still largely hypothetical version of the internet called the “metaverse” that relies on virtual and augmented reality technologies. And that change is expensive: Meta said it lost $2.8 billion in the quarter from its Reality Labs unit.

Meta CFO Dave Wehner said on Wednesday’s call that mergers and acquisitions are “definitely a component” of his strategy to build the metaverse and “we will continue to consider acquisitions in the future” despite the FTC challenge.

“The social media company will face several challenges in the coming months, primarily a slowdown in revenue growth due to reduced advertising spend, as well as a lack of innovation and the introduction of new user-friendly features. “said Jesse Cohen, senior analyst at in a note to investors following the earnings report. On top of that, Cohen said, investors “must also be concerned about the negative impact of potential regulatory actions by the U.S. government.”

On the call, Zuckerberg also commented on his decision to increase the number of recommended posts Facebook and Instagram users see in their feeds relative to the content of the accounts they follow – which Zuckerberg called “a driving force.” of discovery”. Earlier this week, user game against such changes on Instagram came to a head when a post calling for “Instagram Redo Instagram” went viral and was reposted by Kim Kardashian and Kylie Jenner.

“As we grow our discovery engine…I want to make it clear that we are still a social enterprise,” Zuckerberg said. He added that currently around 15% of content on users’ Facebook feeds (and slightly more on Instagram) is AI-recommended from accounts they don’t follow. He expects that number to more than double by the end of next year.

Meta COO Sheryl Sandberg tried to reassure investors on Wednesday’s call – which will be her last, after announcing she would step down last month – saying, “Meta is a company that has shown extraordinary resilience.”

“We’ve made some big transitions, like moving from desktop to mobile or from Stream to Stories,” she said. “The investments we are making in Reels, in our discovery engine, in commercial messaging, in controlling our advertising system and especially in building the metaverse represent huge opportunities for our business.”

Meta on Wednesday announced another change to its C-Suite. Wehner will become Meta’s first Chief Strategy Officer on Nov. 1, responsible for “corporate strategy and development.” Meta’s current Vice President of Finance, Susan Li, will assume the position of Chief Financial Officer.