X

This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.



Please create a password or click to receive a login link.


Please enter your password or get a login link if you’ve forgotten


Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

A South African Hero: You

There’s a 99.7% chance that this isn’t for you. Only 0.3% of our readers have responded to this call for action.

Those 0.3% of our readers are our hidden heroes, who are fuelling our work and impacting the lives of every South African in doing so. They’re the people who contribute to keep Daily Maverick free for all, including you.

We need so many more of our readers to join them. The equation is quite simple: the more members we have, the more reporting and investigations we can do, and the greater the impact on the country. We are inundated with tip-offs; we know where to look and what to do with the information when we have it – we just need the means to help us keep doing this work.

Be part of that 0.3%. Be a Maverick. Be a Maverick Insider.

Support Daily Maverick→
Payment options

Meta posts first-ever revenue drop as inflation throttl...

Business Maverick

Business Maverick

Meta posts first-ever revenue drop as inflation throttles ad sales

Visitors take photographs in front of signage at Facebook headquarters in Menlo Park, California, US, on 25 October 2021.
By Bloomberg
28 Jul 2022 0

The owner of Facebook has issued a gloomy forecast after recording its first ever quarterly drop in revenue on Wednesday, with recession fears and competitive pressures weighing on its digital ads sales.

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

The company said 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. Analysts were expecting $30.52-billion, according to IBES data from Refinitiv.

Total revenue, which consists almost entirely of ad sales, fell 1% to $28.8 billion in the second quarter ended June 30, from $29.1-billion last year. The figure slightly missed Wall Street’s projections of $28.9-billion, according to Refinitiv.

The company, which operates the world’s largest social media platform, reported mixed results for user growth.

Monthly active users on flagship social network Facebook came in slightly under analyst expectations at $2.93-billion in the second quarter, an increase of 1% year over year, while daily active users handily beat estimates at $1.97-billion.

Like many global companies, Meta is facing some revenue pressure from the strong dollar, as sales in foreign currencies amount to less in dollar terms. Meta said it expected a 6% revenue growth headwind in the third quarter, based on current exchange rates.

Still, the Meta results also suggest that fortunes in online ads sales may be diverging between search and social media players, with the latter impacted more severely as ad buyers reel in spending.

Alphabet, the world’s largest digital ad platform, reported a rise in quarterly revenue on Tuesday, with sales from its biggest moneymaker – Google search – topping investor expectations. Read full story

Snap and Twitter both missed sales expectations last week and warned of an ad market slowdown in coming quarters, sparking a broad sell-off across the sector. Read full story

On top of economic pressures, Meta’s core business is also experiencing unique strain as it competes with short video app TikTok for users’ time and adjusts its ads business to privacy controls rolled out by Apple last year.

The company is simultaneously carrying out several expensive overhauls as a result, revamping its core apps and boosting its ad targeting with AI, while also investing heavily in a longer-term bet on “metaverse” hardware and software. Read full story

Meta executives told investors they were making progress in replacing ad dollars lost as a result of the Apple changes but said it was being offset by the economic slowdown.

They added that Reels, a short video product Meta is increasingly inserting into users’ feeds to compete with TikTok, was now generating over $1- billion annually in revenue.

However, Reels cannibalises more profitable content that users could otherwise see and will continue to be a headwind on profits through 2022 before eventually boosting income, executives told analysts on Wednesday.

“They are being greatly affected by everything,” Bokeh Capital Partners’ Kim Forrest said, referring to the economic slowdown as well as competition from TikTok and Apple.

“Meta has a problem because they’re chasing TikTok and if the Kardashians are talking about how they don’t like Instagram … Meta should really pay attention to that.”

On Monday, two of Instagram’s biggest users, Kim Kardashian and Kylie Jenner, both shared a meme imploring the company to abandon its shift to TikTok-style content suggestions and “make Instagram Instagram again”. Read full story

CEO Mark Zuckerberg did not appear to be swayed, however.

About 15% of content on Facebook and Instagram is currently recommended by AI from accounts users do not actively follow, and that percentage will double by the end of 2023, he told investors on the call.

For now, at least, the metaverse part of Meta’s business remains largely theoretical. In the second quarter, Meta reported $218-million in non-ad revenue, which includes payments fees and sales of devices like its Quest virtual reality headsets, down from $497-million last year.

Its Reality Labs unit, which is responsible for developing metaverse-oriented technology like the VR headsets, reported sales of $452-million, down from $695-million in the first quarter.

Although Meta has recently slowed investments as cost pressures increased, executives reassured investors it was still on track to release a mixed-reality headset called Project Cambria later this year, focused on professionals.

Meta broke out the Reality Labs segment in its results for the first time earlier this year, when it revealed the unit had lost $10.2-billion in 2021.

Its second-quarter operating profit margin fell to 29% from 43% as costs rose sharply and revenue dipped.

In November, chief financial officer David Wehner will become Meta’s first chief strategy officer. Susan Li, Meta’s current vice president of finance, will become CFO. BM

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

No Comments, yet

Please peer review 3 community comments before your comment can be posted