Profit companies

Facebook parent company announces revenue drop for the first time

The results from Meta, Facebook’s parent company, are the latest sign of a prolonged downturn in the digital advertising market.

Noah Berger/AFP via Getty Images

Updated July 27, 2022 7:03 PM ET

Facebook’s parent company Meta has suffered a double whammy in the past three months: revenue fell for the first time and profits fell for the third consecutive quarter, amid growing competition from TikTok and the nervousness of advertisers.

“We appear to have entered an economic recession that will have a significant impact on the digital advertising industry,” CEO Mark Zuckerberg told investors on a conference call. “I would say the situation looks worse than a quarter ago.”

He said Meta would cut spending and slow its pace of hiring to weather the storm.

“It’s a time that demands more intensity, and I expect us to do more with less,” he said.

Meta shares were down on the news, adding to a decline that has nearly halved the company’s market value since it reported its first-ever drop in Facebook’s daily user count at the end of Last year.

Revenue fell 1% from a year ago to $28.8 billion in the three months to June, a bigger drop than Wall Street analysts expected. The strengthening dollar was a factor in lower revenue, Meta said, without which it would have seen a 3% increase.

The company’s sales forecast for the current quarter of $26 billion to $28.5 billion was also lower than analysts’ estimates.

Profit fell 36% to $6.7 billion.

There was a silver lining in Meta’s quarterly report, however: people are still using Facebook. The number of people logging into the flagship social network daily rose 3% to 1.97 billion, defying Wall Street expectations of another drop.

Meta’s results are the latest sign of a prolonged downturn in the digital advertising market as companies cut spending amid soaring inflation, rising interest rates and other economic challenges . The company blamed its lukewarm third-quarter guidance on “weak advertising demand” due to 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 from the market value of ad-dependent tech companies after Snapchat and Twitter posted disappointing results last week.

Snapchat announced its weakest quarterly growth rate on record – even worse than the company warned in May – and said the situation was too uncertain to be able to give a financial forecast for the coming months.

Twitter’s revenue unexpectedly fell, which the company blamed on jittery advertisers and its rocky deal to sell the company to Elon Musk.

On Tuesday, Google announced its slowest quarterly growth rate since the early days of the pandemic.

Facing growing competition over a dwindling pool of ad dollars, Meta is trying to pull off an ambitious pivot. It’s revamping Facebook and Instagram to look and function more like TikTok, the Chinese upstart popular among young users, by filling users’ feeds with short videos of influencers and random strangers.

During Wednesday’s earnings call, Zuckerberg said Meta’s efforts are boosting engagement, calling 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% of posts that appear in users’ Facebook and Instagram feeds now come from accounts they don’t follow, but the company’s AI thinks they might 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 isn’t making as much money from ads in these videos as it does in other formats.

Additionally, the changes are getting backlash from some high-level users. Celebrities Kim Kardashian, Kylie Jenner and Chrissy Teigen all complained this week about Instagram’s recent focus on video and the move to mimic TikTok.

Tuesday, Instagram header Adam Mosseri responded to the review and acknowledged that some of the changes to the app are “not good yet”.

But, he said, “I have to be honest. I believe more and more Instagram is going to go video over time.”

The world is changing rapidly, he said, and business must change with it.

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