Facebook’s decade-long streak of nonstop revenue growth has come to an end.
The social network reported its first annual drop in revenue in the second quarter, announcing a 1% drop to $28.8 billion, and predicted third-quarter growth could fall further. Overall profit at its parent company, Meta, fell 36 percent to $6.7 billion. The Reality Labs division responsible for building Mark Zuckerberg’s metaverse dreams lost $2.8 billion in the quarter.
While the first decline in revenue growth was expected on Wall Street in Wednesday’s earnings report, it solidifies how challenged Meta’s business has quickly become on all fronts. Apple’s “Do Not Track” message on iPhones has made its ads far less effective, costing Meta $10 billion in ad revenue last year alone. And now the rapid slowdown in the economy has caused advertisers to cut back on their spending.
Meanwhile, in its effort to compete with TikTok, Meta is restructuring Facebook and Instagram to emphasize videos and short posts that its system recommends to people. On a call with analysts, Zuckerberg said the percentage of content people see on Facebook and Instagram that comes from accounts they don’t follow will double next year. Building the AI needed to make that possible is a costly investment, he said.
Although Meta’s revenue is declining, it managed to grow Facebook’s daily users by 3 percent to 1.97 billion, reversing a worrying decline in users it saw a couple of quarters ago. Meta reported that 2.88 billion now use its suite of social apps (Facebook, Messenger, Instagram and WhatsApp) every day, up 4% from a year ago.
“This is a period that demands more intensity”
Zuckerberg said the company had seen “engagement trends” that were “stronger than we anticipated” on Facebook, thanks in large part to an increase in video consumption. He said Reels, the company’s short-form video format aimed at TikTok, is monetizing faster than Stories after the company copied that format from Snapchat several years ago. In the long run, the company expects Reels to be a revenue generator, but for now the company prioritizes Reels and doesn’t make much money from them.
“This is a period that demands more intensity, and I hope we can do more with fewer resources,” Zuckerberg said on the earnings call with analysts, echoing comments he recently made to employees about the cut of costs “I think we will go through this period as a stronger and more disciplined organization.”