Meta, the parent company of Facebook and Instagram, reported its first revenue decline in history on Thursday, dragged down by a drop in ad spending as the economy falters — and as competition from rival TikTok intensifies.
Following the results, the company’s stock fell slightly in after-hours trading, indicating that Wall Street was largely expecting a poor earnings report.
The results also largely coincided with a broader decline in the digital advertising market, which has harmed competitors such as Alphabet and Snap. On Tuesday, Google’s parent company reported its slowest quarterly growth in two years.
Meta also faces some unique challenges, such as the impending departure of Sheryl Sandberg, the chief architect of the company’s massive advertising business.
In addition to TikTok, the decline in ad spending during the downturn and Apple’s privacy changes, “questions about Meta’s leadership” — including Sandberg’s exit and negative sentiment about the company as a whole — also contributed to the decline, said Raj Shah, a managing partner at digital consultancy Publicis Sapient.
In the April-June period, Meta earned $6.69 billion in profits or $2.46 per share. This is a 36% decrease from $10.39 billion, or $3.61 per share, in the same period last year. Revenue was $28.82 billion, a 1% decrease from $29.08 billion the previous year.
According to FactSet, analysts were expecting earnings of $2.54 per share on revenue of $28.91 billion. “The year-over-year drop in quarterly revenue demonstrates how quickly Meta’s business has deteriorated,” says the report “Debra Aho Williamson, an Insider Intelligence analyst, stated in an email. “Before these results, we predicted that Meta’s global ad revenue would rise 12.4 percent this year, to nearly $130 billion.” It is now unlikely to reach that figure.”
She went on to say that the good news — if it can be called that — is that Meta’s competitors are also slowing down.
Meta is undergoing a corporate transformation that will take years to complete. It wishes to progress from social media to the “metaverse,” a risky bet that is still in its early stages. The metaverse is like the internet come to life, or at least rendered in 3D. CEO Mark Zuckerberg refers to it as a “virtual environment” in which you can immerse yourself rather than simply stare at a screen. The company is investing billions in metaverse plans that will most likely take years to pay off — and as part of that plan, the company renamed itself, Meta, last fall.
“Expect Meta’s decline to continue until Meta can monetize the metaverse and start a new Meta-reverse,” Shah predicted.
Meta expects revenue of $26 billion to $28.5 billion in the current quarter, which is less than what Wall Street expects.
“This outlook reflects a continuation of the weak advertising demand environment we experienced throughout the second quarter,” finance chief David Wehner said in a statement. Wehner has been promoted to chief strategy officer, where he will be in charge of the company’s strategy and corporate development. Susan Li, who is currently vice president of finance, will take over as CFO.
In after-hours trading, Meta Platforms Inc. shares fell 58 cents to $169.