facebook parent Meta reported a sharper-than-expected drop in revenue, missed profits and issued an unexpectedly weak outlook, pointing to a second consecutive year-on-year decline in sales. Shares fell 3.8% in extended trading.
Here’s how the company did it:
- Income: $2.46 per share compared to $2.46 per share. According to Refinitiv, $2.59 per share is expected.
- Income: $28.82 billion vs. $28.94 billion expected, according to Refinitiv.
- Daily Active Users (DAU): According to StreetAccount, 1.97 billion versus an expected 1.96 billion.
- Monthly Active Users (MAU): 2.93 billion versus an expected 2.94 billion, according to StreetAccount.
- Average revenue per user (ARPU): $9.82 vs. $9.83 expected according to StreetAccount.
Meta’s shares have lost about half their value since the start of the year, highlighting investors’ concerns about the state of the company’s core online advertising business. This unit has been affected by Apple An iOS privacy update last year that limited Meta’s ability to track users, as well as a weakening economy that forced some companies to cut their ad budgets.
Revenue in the second quarter fell nearly 1% from a year earlier. Meta also released a disappointing third-quarter outlook, citing “a continuation of the weak ad demand we experienced in the second quarter, which we believe is driven by broader macroeconomic uncertainty.”
Meta CEO Mark Zuckerberg said in a call with analysts that the company will be cutting headcount next year as it tightens its belts due to the economic downturn.
“This period requires more intensity, and I expect that we can do more with less resources,” Zuckerberg said.
Revenue in the third quarter will be in the range of $26 billion to $28.5 billion, according to Refinitiv, below analysts’ average estimate of $30.5 billion. This means a projected decline of 2% to 11% compared to last year.
Facebook’s alarming results follow a trend started last week by competitors. Click as well as Twitter. Both of these companies informed disappointing second quarter numbers, and executives mentioned the economic and mobile platform challenges that are permeating the online advertising market. This week’s mood is so bad that stock or Alphabet as well as Microsoft rose on Wednesday, despite the fact that both companies fell short of analysts’ estimates on the top and bottom lines.
Another concern for Meta is the continued growth of short video app TikTok, which is attracting users and gaining market share of ads. Zuckerberg said by phone that Facebook’s Instagram Reels offering, which competes with TikTok, has reached $1 billion in annual revenue. However, despite Facebook’s investment in Reels, the product doesn’t generate the same revenue as Instagram Stories and the main news feed.
“In the short term, the faster Reels grows, the more revenue that is actually being crowded out by higher monetized products,” Zuckerberg said.
The P&L call was the last for Sheryl Sandberg, COO of Meta, who announced in June that she is leaving the company after 14 years. Given the state of the business, she couldn’t share the good news.
Sheryl Sandberg, Facebook COO, speaks on stage during the “Advancing a Better Facebook” keynote at the 6th Annual Vanity Fair New Institutions Summit.
Matt Winkelmeyer | Getty Images
“These are still turbulent times for the global economy,” Sandberg said. “Many of the macro factors affecting our revenue are continuations of what we have seen in previous quarters, such as the continued impact of the war in Ukraine and the normalization of e-commerce since the peak of the pandemic. But there are also new factors. problems with rising inflation and uncertainty about an impending recession.
Meta said its headcount increased 32% year-over-year to 83,553. However, the company indicated earlier in the period when he plans to slow down the pace of hiring, echoing the opinion of many of his technical colleagues. Total spending in 2022 is also expected to be between $85 billion and $88 billion, compared to previous estimates of $87 billion to $92 billion.
Huge sums are being spent on Meta’s Reality Labs division, which is responsible for the development of the metaverse and related virtual and augmented reality technologies. The division generated $452 million in sales but posted a $2.8 billion loss in the second quarter, and Meta says it expects less revenue in the third quarter than it did in the second.
Earlier this week Meta raised The Quest 2 VR headset is priced at $100, citing rising manufacturing and shipping costs. While Meta is currently the top seller of VR headsets, the market is still tiny compared to mobile advertising.
As the company continues to focus on the metaverse as part of its corporate rebrand, it is also spending more on sales and marketing. Those spending jumped 10% year-over-year to $3.6 billion in the second quarter.
As Facebook struggles to meet Wall Street’s demands, CFO David Wehner is taking on a new role as chief strategy officer, overseeing corporate development, the company said. Meta is promoting Susan Lee, the company’s current vice president of finance, to the position of chief financial officer.