Meta Reports First Drop in Revenue and 36% Profit Drop

SAN FRANCISCO — For years, Facebook’s sales have steadily grown and continued to rise, defying the laws of gravity, even as the company was torn apart by scandals over Confidentiality as well as disinformation.

Not anymore.

On Wednesday, Meta, the company formerly known as Facebook, reported a 1% drop in quarterly revenue from the previous year. Since then, the social media giant’s earnings have fallen for the first time. became public a decade ago, when he faced increased regulatory scrutiny and a volatile economy while trying to build a new frontier of digital communications.

Meta’s second-quarter revenue was $28.82 billion, up from $29.07 billion a year earlier. Profit was $6.69 billion, down 36 percent from a year earlier. According to data compiled by FactSet, Wall Street analysts had forecast earnings of $7.04 billion on revenue of $28.9 billion.

The results exacerbated a difficult day for the Meta, which was also sued Wednesday by the Federal Trade Commission on the acquisition of virtual reality company Within. The lawsuit hit right on ambition Mark Zuckerbergfounder and CEO of Meta, which spends billions of dollars to create an immersive world of social interaction in “Metaverse” which is a combination of virtual and augmented reality that will be linked by commerce and online relationships.

The decline in Meta’s revenue was especially sharp given that back in 2019, its quarterly revenue growth was 28 percent. The company attributed its recent weak financial results to weaker demand for digital advertising and broader economic uncertainty.

“It looks like we have entered an economic downturn that is going to have a big impact on the digital advertising business,” he said. Zuckerberg said in a telephone conversation about the profit and loss. “The situation seems worse than a quarter ago.”

Google, Twitter and Click, which rely on online advertising, also said this month that the demand for advertising has declined due to the slowdown in the global economy. Some companies cited the effects of the war in Ukraine and its destabilizing effect on the European advertising market, as well as the strong US dollar that hurt companies when it comes to global sales.

This pain is unlikely to end soon. In the current quarter, Meta said it expects “weak ad demand to continue.” E-commerce advertising has waned as the “peak of the pandemic” has passed and more people have taken to the streets, the company said, adding that such difficult times have historically been “cyclical.”

mr. Zuckerberg, who has held back spending and cut benefits at his company, said he expects to “do more with less.” But he noted that he plans to continue investing in key areas that will prepare Meta for the next phase of growth.

Economic turmoil aside, Meta is facing its own particular set of challenges. Apple made privacy-related changes last year that hampered Meta’s ability to measure and serve its ads on Apple mobile devices. (Meta gets most of its revenue from smartphone ads.)

It’s also eyeballing one of its toughest competitors on TikTok, a Chinese video app that has garnered more than a billion people in just a few years. mr. Zuckerberg began changing his company’s products to mimic TikTok’s offerings. including radical changes on Instagram and Facebook.

At the same time, Mr. Zuckerberg has invested heavily in his vision of the metaverse. He told investors, technologists and others that the effort could take years to bear fruit and that the effort would be costly. Some investors doubt that the investment will pay off in the long run.

However, there were some bright spots in Meta’s earnings report. The company said its “daily active people” – a term describing users across its family of apps including Facebook, Instagram and WhatsApp – increased to 2.88 billion, up 4 percent from a year ago. This beat analysts’ expectations that the company was losing visitors. The Facebook app also saw a rise in users in the United States, where some felt they were oversaturated.

mr. Zuckerberg said he was encouraged by other areas of Meta’s business that drive growth and engagement, such as Product Video Rules, a feature on Instagram similar to the TikTok video offer. Investment in AI recommender algorithms has also encouraged more people to use the service for longer periods of time, the company said.

His goal, he said, was to eventually make more money from Reels, which is not as profitable for Instagram as the app’s other ad formats. Part of the challenge was to push through a “cannibalization” effect where more people use the new Reels product and opt out of seeing the more valuable ads displayed between the photo and story parts of the app. mr. Zuckerberg said that he thinks it’s only a matter of time before the Meta figure out how to make better money on drums.

To get through the difficult period, the company said it plans to slow down recruitment in the second half of the year and cut costs. Meta’s Reality Labs hardware division, which makes virtual reality headsets and other products, said Tuesday that it will increase the price of its outstanding Quest 2 VR headset by $100.

The Meta also said that David Wehner, chief financial officer, will become chief strategy officer, a new position that will also oversee corporate development. Susan Lee, vice president of finance at Meta, will become chief financial officer.

In a post on his Facebook page, Mr. Zuckerberg said the change in Mr. The role of Venus will help with problems, partnerships and internal organization. “These areas will benefit from a more disciplined strategy development process,” he said.

Sheryl Sandberg, Meta’s chief operating officer, also appeared Wednesday on the company’s earnings report, the latest in her 14-year tenure. Mrs. Sandberg, who is planning leave the company in the fallset an upbeat tone, acknowledging the challenges the Meta is facing.

“There is no doubt that we are in transition, and we are doing so at a time of global economic uncertainty,” she said. “Meta is a company that has demonstrated extraordinary resilience. And we’ve demonstrated over and over again that when we create products, they scale around the world.”