Meta posts first revenue drop in its history as advertisers pull spend
Meta has announced its first-ever drop in revenue during an update on its financial results for the second quarter of the year, saying the ”economic downturn” is having an impact on its digital advertising business. The situation ”seems worse than it did a quarter ago,” warns chief exec Mark Zuckerberg.
The results mark the third consecutive fall in profits for the tech company / Adobe Stock
Compared with the same period in 2021, the Facebook owner saw a 1% drop in overall revenue to just under $29bn. That contributed to its third quarterly drop in profits in a row for the company, which has warned about significant headwinds to its performance in the next few years.
The results release states: “We expect third quarter 2022 total revenue to be in the range of $26-28.5bn. This outlook reflects a continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty.”
It also notes that its flagship Reality Labs – the metaverse activity around which it rebranded – will deliver lower third-quarter revenue compared with Q2. To put that in perspective, in this second quarter it announced that the division had made a loss of $2.81bn. That is perhaps why the company recently announced it would increase the price of its Meta Quest 2 VR headsets by $100, despite including no new hardware features.
The Q2 update warns that it expects a slowdown in the global economy will be a drag on its activity, saying: “Foreign currency will be an approximately 6% headwind to year-over-year total revenue growth in the third quarter, based on current exchange rates.”
The company has revised its overall outlook for the year. However, with the impact of Zuckerberg’s move to reduce headcount coming into effect, it said it expected 2022 total expenses to be in the range of $85-88bn, reduced from its prior outlook of $87-92bn. The company was forced to reduce hiring plans “to account for the more challenging operating environment while continuing to direct resources toward our company priorities”.
The industry reacts
In light of the ongoing disappointing advertising results for tech companies, much of the marketing industry saw Meta as a bellwether for the overall performance of the sector for the rest of the year.
Raj Shah, lead for telecom, media and technology at Publicis Sapient, says: “The Meta Q2 earning decline follows similar trends in digital ad stocks Snap, Twitter and Alphabet. Five factors contribute to the decline. These are the competition from TikTok, reduced ad spend in a downturn, iOS privacy changes and questions about Meta leadership, both with COO Sheryl Sandberg’s departure and negative PR about corporate policies.
“Meta’s big bet on the metaverse will continue to be a cost center for years. Despite all these factors, Meta is one of the few options for digital advertising at scale and that remains undervalued. Expect Meta’s decline to continue until it can monetize the metaverse and begin another Meta-reverse.”
Zarnaz Arlia, the chief marketing officer for Emplifi, believes that Meta remains in a strong position when it comes to e-commerce and influencer marketing through its various diversified products. She says: “The pandemic led to a change in purchasing habits, resulting in brands investing more in social commerce. In Q2, we’ve seen online spend for brands remain high, with a 16% spike in median monthly ad spend compared to Q1 2022 for brands on Facebook. However, it appears that the easing of pandemic restrictions and TikTok’s ever-increasing presence are now having an impact.
“To remain competitive, Meta is exploring new ground when it comes to monetization. Influencer marketing has always been a huge differentiator for Instagram. Recently, Meta rolled out several initiatives, such as its Creator Marketplace, to incentivize content creators to leverage the platforms and increase their earning potential.”