Meta Posts First Ever Revenue Decline, Amid Intense Pressures

Meta delivered its second quarter financial results that has clearly demonstrated its long expected problems during 2022.

Meta has been warning for a while now about the pressures it faces, with intense competition from the likes of TikTok and declining advertising spend (in part down to Apple’s privacy changes).

Indeed in February Meta alarmed Wall Street investors when for the first time Facebook’s DAU metric declined, and the firm posted weaker than expected fourth quarter results, causing its share price to plunge more than 20 percent.

Second quarter results

And now another factor is the declining economic environment – which has resulted in meta producing a fairly gloomy set of second quarter financials.

For the three months ending 30 June, Meta posted a net profit down a staggering 36 percent at $6.7bn, from $10.4bn in the same year ago quarter.

There was also a 1 percent decline in revenues (the first dip in revenues since Meta went public) as sales fell to $28.8bn from $29.1bn in the second quarter of 2021.

That sales figure slightly missed Wall Street’s projections of $28.9 billion.

The platform also warned that it expects third-quarter revenue to fall to $26 billion and $28.5 billion, which would make it a second year-over-year drop in a row.

Shares of the Menlo Park, California-based company were down about 4.6 percent in extended trading.

“It was good to see positive trajectory on our engagement trends this quarter coming from products like Reels and our investments in AI,” said Mark Zuckerberg, Meta founder and CEO.

“We’re putting increased energy and focus around our key company priorities that unlock both near and long term opportunities for Meta and the people and businesses that use our services,” said Zuckerberg.

And the firm reported mixed results for for user growth, as follows:

• Facebook daily active users (DAUs) – DAUs were 1.97 billion on average for June 2022, an increase of 3 percent year-over-year.
• Facebook monthly active users (MAUs) – MAUs were 2.93 billion as of June 30, 2022, an increase of 1 percent year-over-year.
• Ad impressions and price per ad – In the second quarter of 2022, ad impressions delivered across its Family of Apps increased by 15 percent year-over-year, but the average price per ad decreased by 14 percent year-over-year.

Meta said that its headcount stood at 83,553 as of 30 June 2022, an increase of 32 percent year-over-year.

Meta earlier this month slashed its hiring plans, by cutting plans to hire engineers by at least 30 percent this year.

Meta has reduced its target for hiring engineers in 2022 to around 6,000-7,000, down from an initial plan to hire about 10,000 new engineers.

Expert reaction

Meta first dip in revenue for the first time in its history, as the business encountered several headwinds, has been noted by industry experts.

“Problems that have beset the company in previous quarters continued to cause problems – most obviously the challenge of monetising short form video, and privacy controls on iOS – but the company said the worsening macroeconomic environment is also an immediate challenge,” noted Leo Gebbie, principal analyst, connected devices at CCS Insight.

“Short form video remains problematic for Meta,” said Gebbie. “The firm is still working out how to monetise ads for its Reels service more effectively, while rivals such as TikTok are fighting for their share of advertising budgets.”

“Meta is in a challenging position here,” said Gebbie. “It must respond to changing dynamics in the market but is suffering heavy backlash from some of its most influential celebrity users who feel that the core user experience on apps like Instagram is no longer serving their needs. However, it sees this as a necessary short-term pain for long-term gain.”

“Despite a conciliatory tone on the previous earnings call where Meta pledged to fund its metaverse vision more sensibly, its Reality Labs segment remains an area of heavy investment with few returns to show,” noted Gebbie.

“Mark Zuckerberg continues to fight for the metaverse, arguing that he sees this as a massive opportunity which will unlock billions to trillions of dollars in time, but right now, it remains a vaguely defined concept at best,” said Gebbie.

“It is notable that after a heavy hiring spree during its bid to build the metaverse, Meta has now stated its intention to reduce recruitment as a result of the increasingly difficult macroeconomic landscape,” said Gebbie. “This echoes decisions made by rivals such as Alphabet, which are also tightening their belts amid tough times.”

“Meta’s underlying company performance is not to be undervalued; it still enjoys a healthy operating margin and saw some improvements of usage figures across its family of apps,” said Gebbie. “The company has highlighted its success in pushing through difficult changes before, such as its success in monetising Stories, and will be aiming to manage this transitional phase using its established playbook.”

Content presentation changes

Last week Meta announced major changes to the way users interact with the content it presents. separating out various tabs, so it can deliver more targetted content to the user.

For example, it is naming the primary tab – the first thing a user sees when when they open the app – ‘Home.’

‘Home’ is therefore the new name of the tab a user will first see when they open Facebook, and it will contain more content from accounts that users do not currently follow, including Reels and Stories.

Of course, this change may not go down well in some quarters, so Facebook is launching what it is calling the ‘Feeds’ tab, for wishing to stick with a more traditional Facebook experience.

The Feeds tab is a new way for users to find the most recent posts from friends, family, Favourites, Pages and groups, that users are already connected with. There will be no ‘suggested for you’ posts in the Feeds tab, but ads will still be included.