Meta blamed macroeconomic pressures for its first quarterly year-over-year revenue decline and offered investors a bleak outlook for the coming months as advertisers scale back spending.
Targetformerly known as Facebook, said on Wednesday that revenue for the April-June period was $28.82 billion, down 1 percent from the same period in 2021. Analysts had expected revenue of $28.92 billion, according to consensus data compiled by FactSet.
In a conversation with investors, the executive director Mark Zuckerberg painted a bleak picture for the rest of 2022. “It looks like we’ve entered an economic downturn that will have a broad impact on the digital advertising business,” he said.
“It’s always hard to predict how deep and how long these cycles will be. But I would say the situation seems worse than a quarter ago.”
Like several of his Big Tech peers, Meta said foreign exchange pressure also weighed on his earnings, particularly the euro’s weakness against the dollar. Without currency headwinds, the company said, revenue would have grown 3 percent year-on-year.
The average price per ad fell by 14 percent in that period compared to last year. Speaking to investors, outgoing chief operating officer Sheryl Sandberg said the company is still in the “early” stages of figuring out how to counter Apple’s influence recent privacy changeswhich places tighter controls on the amount of data collected about users for ad targeting.
Meta results correspond to a trend of poor performance among the big players in online advertising – the business model that underpins much of the Internet economy.
Shares in Snap, owner of Snapchat, fell about 25 percent last week after its earnings beat analysts’ targets, citing advertisers cutting budgets. Twitter advertising revenue fell 1 percent in the second quarter, when Wall Street was expecting 11 percent growth.
The online advertising network’s biggest player, Google parent Alphabet, on Tuesday blamed a cut in ad spending after revenue from its video-sharing site YouTube fell short of expectations. Total revenue at Alphabet is growing at its slowest pace in two years. However, shares in the search group rose 8 percent on Wednesday, with its performance generally better than analysts had feared.
Meta’s net income fell to $6.69 billion from $10.39 billion last year. Wall Street had expected a profit of around $7 billion. Total costs and expenses increased by 22 percent. Despite announcing a hiring slowdown, headcount grew 32 percent year over year, and Zuckerberg said he would delegate downsizing decisions to individual team leaders.
The company said it expects current-quarter revenue to be between $26 billion and $28.5 billion, lower than the $30.4 billion analysts were expecting, according to S&P Capital IQ data.
“This outlook reflects the continuation of the weak advertising demand we experienced during the second quarter, which we believe was driven by broader macroeconomic uncertainty,” said Chief Financial Officer David Wehner.
Shares in Meta fell about 3 percent in after-hours trading.
Zuckerberg used the earnings announcement to elaborate the Sandberg succession plan, who will be leaving the company this fall. Wehner, a 10-year Meta veteran, will assume the newly created role of Chief Strategy Officer. Susan Li, who has been with the company for 14 years, will be promoted from vice president of finance to CFO.
When Sandberg joined the company in 2008, its user base was roughly 100 million. Today, Meta’s “family” of apps, which includes WhatsApp and Instagram, has 3.65 billion monthly active users, up 4 percent year-over-year. Daily active users amounted to 2.88 billion.
Those numbers are being watched closely as the company grapples with backlash over recent changes to some of its products, particularly its efforts to get users to consume Reels, its new short-form video product designed to compete with fast-growing TikTok.
Meta said Reels is doing $1 billion a year, but the transition has encountered significant friction. The Instagram app recently changed to prioritize more videos, often from accounts the user doesn’t follow or from advertisers.
On Wednesday, Zuckerberg signaled that the company would stick with that strategy across all of its apps.
“About 15 percent of the content on a person’s Facebook feed and slightly more than the content on Instagram is recommended by our AI,” he said. “We expect these numbers to more than double by the end of next year.”
Among the many critics of this change was the famous Kim Kardashian, who published a story on the platform calling on the company to “make Instagram Instagram again.” With more than 320 million followers, Kardashian is one of the app’s most prominent personalities.
Her disagreement, echoed by her half-sister Kylie Jenner, prompted a response from Instagram CEO Adam Mosseri. He told users that he believes video will become the focus of Instagram. “The world is changing fast and we will have to change with it,” he said.