Inflation halts ad sales as Meta revenue drops for first time

Inflation halts ad sales as Meta revenue drops for first time

Meta Platforms Inc. on Wednesday issued a disappointing forecast after reporting its first quarterly decline in revenue amid concerns that an economic slowdown and competitive pressures will hit digital ad sales.

Shares of California-based Menlo Park Corp fell about 4.6% in extended trading.

The company said it expects third-quarter revenue to be between $26 billion and $28.5 billion, the second straight year of year-over-year declines. Analysts had expected $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, up from $29.1 billion last year. That figure was slightly below Wall Street’s estimate of $28.9 billion, according to Refinitiv data.

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

Flagship social network Facebook’s monthly active users came in at 2.93 billion in the second quarter, slightly below analysts’ expectations and up 1% from a year earlier, while daily active users beat expectations of 1.97 billion.

Like many global companies, Meta faces some revenue pressure from a stronger dollar as foreign currency sales fall against the greenback. Based on current exchange rates, Meta said it expects revenue to rise 6% in the third quarter.

Still, the metadata results also suggest that search and social media players may have different luck selling online ads, with the latter being more severely affected as ad buyers spend more.

FILE: An electronic screen publishes the Alphabet stock price on February 1, 2016 on the Nasdaq Market website in New York.

Alphabet Inc., the world’s largest digital advertising platform, reported quarterly revenue growth on Tuesday as sales from Google Search, its biggest money lender, topped investor expectations.

Snap Inc. and Twitter both missed sales forecasts last week and warned of a decline in the ad market in coming quarters, leading to a broader sell-off across the region.

In addition to economic pressures, Meta’s core business is under unprecedented pressure as it competes with short-video app TikTok over Apple’s tweaks to user time and privacy controls.

This has led to several costly overhauls for the company, improving its core apps and enhancing its ad targeting with artificial intelligence, as well as investing heavily in long-term bets on “Metaverse” hardware and software. Yes.

Meta executives told investors they were making progress in making up for lost ad revenue from Apple’s changes, but said that was being offset by a slowing economy.

He added that short-video product metadata Reel is increasingly being incorporated into users’ feeds to compete with TikTok, which currently generates more than $1 billion in annual revenue.

However, executives told analysts Wednesday that Reel cannibalizes more lucrative content that users may see and will continue to hurt profits through 2022 before eventually increasing earnings.

“They’ve been hit hard by everything,” said Kim Forrest of Bokeh Capital Partners, referring to a slowing economy and competition from TikTok and Apple.

“Meta has a problem because they’re focusing on TikTok, and if the Kardashians are talking about they don’t like Instagram… Meta should really take note of that.”

On Monday, two of Instagram’s biggest users, Kim Kardashian and Kylie Jenner, shared a meme asking the company to drop the shift to TikTok-style content suggestions and “reinvent Instagram.”

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However, CEO Mark Zuckerberg wasn’t interested.

He told investors on a conference call that artificial intelligence currently recommends about 15% of content on Facebook and Instagram to accounts that users are not actively following, a rate that will double by the end of 2023.

The Metaverse part of the Meta business remains largely theoretical, at least for now. In the second quarter, Meta reported non-advertising revenue of $218 million, which includes paid fees and sales of devices like the Quest virtual reality headset, up from $497 million last year.

Its Reality Labs unit, which develops Metaverse-oriented technologies such as VR headsets, reported sales of $452 million, down from $695 million in the first quarter.

Although Meta has recently slowed its investment amid mounting cost pressures, executives have assured investors that it is still on track to release a mixed-reality headset called Project Cambria, which is focused on professionals later this year. .

Meta first broke the Reality Labs unit in its results earlier this year, when it revealed the unit would lose $10.2 billion in 2021.

Its operating margin fell from 43% to 29% in the second quarter as costs rose sharply and revenue fell.

In November, Chief Financial Officer David Weiner will become Meta’s first Chief Strategy Officer. Meta’s current Vice President of Finance, Susan Lee, will become Chief Financial Officer.

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