- Meta missed on the top and bottom lines and gave a troubling forecast for the third quarter.
- The shares have lost about half their value this year as marketers pull back on ad spending.
- The company said its guidance reflects "continuation of the weak advertising demand environment."
Facebook parent Meta reported a steeper-than-expected drop in revenue, missed on earnings and issued a surprisingly weak forecast, pointing to a second consecutive decline in year-over-year sales. The shares dropped 3.8% in extended trading.
Here's how the company did:
- Earnings: $2.46 per share vs. $2.59 per share expected, according to Refinitiv
- Revenue: $28.82 billion vs. $28.94 billion expected, according to Refinitiv
- Daily Active Users (DAUs): 1.97 billion vs 1.96 billion expected, according to StreetAccount
- Monthly Active Users (MAUs): 2.93 vs 2.94 billion expected, according to StreetAccount
- Average Revenue per User (ARPU): $9.82 vs. $9.83 expected, according to StreetAccount
Meta shares have lost about half their value since the beginning of the year, underscoring investor concern about the health of the company's core online advertising business. That unit has been hurt by Apple's iOS privacy update last year, limiting Meta's ability to track users, and by a weakening economy that's led some companies to slash their ad budgets.
Revenue in the second quarter fell almost 1% from a year earlier. Meta also issued a disappointing third-quarter forecast, citing a "continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty."
Meta CEO Mark Zuckerberg said on a call with analysts that the company will be reducing headcount growth over the next year as it tightens its belt for the economic slowdown.
"This is a period that demands more intensity and I expect us to get more done with fewer resources," Zuckerberg said.
Revenue in the third quarter will be in the range of $26 billion to $28.5 billion, trailing the $30.5 billion average analyst estimate, according to Refinitiv. That translates to a projected decline of between 2% and 11% from a year ago.
Facebook's troubling results follow a trend started last week by rivals Snap and Twitter. Those companies both reported disappointing second-quarter numbers, and executives cited economic and mobile platform challenges that have permeated the online ad market. The mood had soured so much by this week that shares of Alphabet and Microsoft rose on Wednesday even though both companies missed analysts' estimates on the top and bottom lines.
One added challenge for Meta is the continued growth of short video app TikTok, which is snagging users and taking ad market share. Zuckerberg said on the call that Facebook's Instagram Reels offering, which competes with TikTok, has reached $1 billion in annualized revenue. However, despite Facebook's investment in Reels, the product doesn't generate revenue as efficiently as Instagram Stories and the main news feed.
"In the near term, the faster that Reels grows, the more revenue that actually displaces from higher monetizing" products, Zuckerberg said.
The earnings call was the last for Sheryl Sandberg, Meta's operating chief, who announced in June that she's leaving the company after 14 years. Given the state of the business, she didn't have a lot of good news to share.
"These continue to be turbulent times for the global economy," Sandberg said. "Many of the macro factors having an impact on our revenue are continuations of things we have seen in previous quarters, such as a continued impact of the war in Ukraine and the normalization of e-commerce after the pandemic peak. But there are also new challenges with rising inflation and uncertainty around a looming recession.
Meta said that its headcount increased 32% from a year earlier to 83,553. However, the company indicated earlier in the period that it plans to slow the pace of hiring, echoing the sentiment from many of its tech peers. It's also expecting total expenses in 2022 to be between $85 billion and $88 billion, down from prior estimates of $87 billion to $92 billion.
A hefty amount of spending is going into Meta's Reality Labs unit, which is responsible for developing the metaverse and related virtual reality and augmented reality technologies. The division brought in $452 million in sales but recorded a $2.8 billion loss in the second quarter, and Meta says it's projected to generate less revenue in the third quarter than in the second.
Earlier this week, Meta raised the price of its Quest 2 VR headset by $100, citing rising production and shipping costs. Although Meta is currently the leader in selling VR headsets, the market is still tiny compared to mobile advertising.
As the company continues to focus metaverse as part of its corporate rebranding, it's also spending more on sales and marketing. Those costs jumped 10% year-over-year to $3.6 billion in the second quarter.
With Facebook struggling to satisfy Wall Street's demands, Chief Financial Officer David Wehner is taking on a new role of chief strategy officer, overseeing corporate development, the company said. Meta is promoting Susan Li, the company's current vice president of finance, to be CFO.