Facebook's parent company reports a drop in revenue for the first time ever
Updated July 27, 2022 at 7:03 PM ET
Facebook parent Meta was hit with a double whammy in the last three months: revenue fell for the first time ever and profit shrank for the third straight quarter, amid growing competition from TikTok and nervousness from advertisers.
"We seem to have entered an economic downturn that will have a broad impact on the digital advertising business," CEO Mark Zuckerberg told investors on a conference call. "I'd say that the situation seems worse than it did a quarter ago."
He said Meta would slim down spending and slow its pace of hiring to weather the storm.
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"This is a period that demands more intensity, and I expect us to get more done with fewer resources," he said.
Meta shares were down on the news, adding to a slide that has cut the company's market value nearly in half since it reported its first-ever drop in daily Facebook users at the end of last year.
Revenue slipped one percent from a year ago to $28.8 billion in the three months ending in June, a bigger drop than Wall Street analysts were expecting. The strengthening dollar was a factor in the revenue decline, Meta said, without which it would have reported a three percent increase.
The company's forecast for sales in the current quarter, of $26 billion to $28.5 billion, was also short of analysts' estimates.
Profit was down 36 percent to $6.7 billion.
There was a silver lining in Meta's quarterly report, however: people keep using Facebook. The number of people logging on to the flagship social network daily ticked up three percent to 1.97 billion, defying Wall Street's expectations of another decline.
Meta's results are the latest sign of a protracted slowdown in the digital ad market, as businesses pull back on spending amid soaring inflation, interest rate hikes and other economic woes. The company blamed its tepid third-quarter forecast on "weak advertising demand" driven by macroeconomic uncertainty.
Social media companies are also still dealing with the impact of Apple's privacy changes, which have made it harder to target ads to smartphone users based on their online activity.
Investors slashed tens of billions of dollars off the market value of ad-dependent tech companies after Snapchat and Twitter posted disappointing results last week.
Snapchat reported its weakest ever quarterly growth rate – even worse than the company had warned back in May – and said the situation was too uncertain for it to give a financial forecast for the coming months.
Twitter's revenue unexpectedly declined, which the company blamed on nervous advertisers and its fraught deal to sell the company to Elon Musk.
On Tuesday, Google reported its slowest quarterly growth rate since the early days of the pandemic.
Faced with increasing competition over a shrinking pool of advertising dollars, Meta is trying to pull off an ambitious pivot. It's revamping Facebook and Instagram to look and work more like TikTok, the Chinese-owned upstart popular among younger users, by filling up users' feeds with short videos from influencers and random strangers.
On Wednesday's earnings call, Zuckerberg said Meta's efforts were boosting engagement, calling out Reels, the company's TikTok-like short video format, and its investment in artificial intelligence technology that recommends content on its apps and helps advertisers target messages.
About 15 percent of posts that show up in users' Facebook and Instagram feeds are now from accounts they don't follow but the company's AI thinks they may like, Zuckerberg said. Meta aims to more than double that proportion by the end of 2023.
But the company faces an uphill battle: while users are spending more time watching Reels, Meta does not make as much money from ads in those videos as it does in other formats.
In addition, the changes are sparking backlash from some high-profile users. Celebrities Kim Kardashian, Kylie Jenner and Chrissy Teigen all complained this week about Instagram's recent emphasis on video and shift to imitate TikTok.
On Tuesday, Instagram head Adam Mosseri addressed the criticism and acknowledged that some of the app's changes are "not yet good."
But, he said, "I need to be honest. I do believe that more and more of Instagram is going to become video over time."
The world is changing quickly, he said, and the company needs to change with it.
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