Facebook and Instagram parent Meta has posted its first ever drop in revenue, dragged down by a drop in ad spending as the economy falters and increased competition from rival TikTok.
Key points:
- Global instability, a slowing ad market and competition from TikTok all contribute to the losses
- Meta has come under high-profile criticism on platforms like Instagram as users shift to video
- COO Sheryl Sandberg, driving Meta’s advertising business, is about to leave the company
Meta shares fell slightly after the results, suggesting Wall Street largely expected the weak earnings report.
The company’s total revenue, almost entirely from ad sales, fell 1% to $41.1 billion in the second quarter in June, nearly half a billion from a year ago.
The results follow a broader decline in the digital advertising market that is undermining rivals such as Alphabet and Snap; Google’s parent company posted its slowest quarterly growth in two years.
The results highlight the unique strain Meta’s core social media business is experiencing as it competes for users’ time with short video app TikTok and adjusts its ad business to privacy controls implemented by Apple last year.
Meta said Reels, a short-form video product it increasingly inserts into users’ feeds to compete with TikTok, was now generating more than $1.4 billion in annual revenue.
“They’re being hit hard by everything, and I’d probably give it a third, a third and a third,” said Kim Forrest of Bokeh Capital Partners, referring to the economy, the slowdown in the global ad market and competition from TikTok and Apple. .
“Meta has a problem because they’re going after TikTok and if the Kardashians talk about how they don’t like Instagram…Meta should pay attention to that.”
Monthly active users on Facebook were also slightly below expectations, although the upside for the digital giant is that Meta’s competitors are also experiencing slowdowns.
Snap Inc and Twitter missed sales expectations and warned of a slowdown in the advertising market, prompting sales across the industry.
Meta also faces some unique challenges, including the impending departure of its chief operating officer Sheryl Sandberg, the chief architect of the company’s massive ad business. (AP: Thibault Camus)
However, Alphabet Inc, the world’s largest digital ad platform, reported a rise in quarterly revenue, with sales of its biggest moneymaker, Google search, beating investors’ expectations.
Exploring the “metaverse”
About 15 percent of Facebook and Instagram content is recommended by AI, and that percentage will double by the end of 2023, according to CEO Mark Zuckerberg.
The world’s largest social media company is undertaking several costly overhauls to keep this core business turning a profit, while investing in a long-term bet on the “metaverse,” a risky bet that’s still in its infancy.
The metaverse is a kind of internet brought to life, or at least rendered in 3D. CEO Mark Zuckerberg has described it as a “virtual environment” that you can immerse yourself in instead of looking at a screen.
The company is pouring billions into its metaverse plans that will likely take years to pay off, and as part of its plan, it changed its name to Meta last fall.
But the challenge will be how the company can monetize this new digital space.
For now, the metaverse part of the business remains largely theoretical. In the second quarter, Meta reported $311 million in non-advertising revenue, which includes sales of devices such as its Quest virtual reality headset, down from $710 million last year.
ABC/Wires