Facebook owner Meta’s first-ever revenue drop

Meta is grappling with a digital advertising market in upheaval from soaring inflation and other factors that are causing a slowdown in ad spending.

Meta CEO Mark Zuckerberg is grappling with a digital advertising market in upheaval as he focuses on the metaverse.

Facebook parent Meta Platforms Iposted its first decline in revenue and issued a muted outlook as the company struggles to adjust to macroeconomic forces and growing competition from rival TikTok.

The company reported quarterly revenue of $US28.8bn, down almost 1 per cent from a year earlier and slightly below the $US28.9bn Wall Street was expecting.

It marks the first time that the company has posted a quarterly drop in revenue from the year earlier.

Meta also disclosed that Facebook’s daily active user base rose to 1.97 billion users. The figure was 1.96 billion three months ago. The increase defied expectations of analysts surveyed by FactSet who thought user numbers would fall.

The company posted a net profit of $US6.7bn for the second quarter, the third quarter in a row Meta’s bottom line has fallen.

The company hasn’t experienced such a slump since the fourth quarter of 2012.

Meta is grappling with a digital advertising market in upheaval from soaring inflation and other factors that are causing a slowdown in ad spending.

Google parent Alphabet this week reported the slowest rate of growth since the second quarter of 2020, when the pandemic crimped demand for advertising in some areas.

Rival Snap Inc. reported its weakest-ever quarterly sales growth last week while Twitter reported a decline in revenue.

The company said it expected third quarter revenue in the range of $26 billion to $28.5 billion. That’s below the $30.4 billion expected by analysts surveyed by FactSet.

“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,” chief financial officer David Wehner said in a statement. The company, like others, said it also is feeling the pinch from the strong dollar, which is weighing on the top line.

Meta’s shares have retreated since the company posted quarterly results in February that showed a sharper-than-expected decline in profit, gloomy revenue outlook and dip in daily users.

Meta’s stock closed more than 6 per cent higher and fell more than 4 per cent after hours following the results.

The company also said it expects its total expenses for 2022 to be between $US85bn and $US88bn, down from the company’s previous outlook of $US87bn to $US92bn.

The company attributed the lowered forecast to a reduction in hiring and overall expense-growth plans for the year.

Meta’s is going through a period of transition.

Chief executive Mark Zuckerberg in April said the company would change how users would see content, in a bid to boost engagement.

The company would use artificial intelligence to recommend content to Facebook and Instagram users from around those social networks, rather than solely showing users content from accounts they already follow.

This effort mimics one of the signature features of rival TikTok, which Mr Zuckerberg in February said posed stiff competition for Meta.

The company also has said that it planned to show Instagram users more videos and full-screen content.

That flurry of changes spurred a backlash from numerous Instagram users this week, most notably from influencers Kim Kardashian and Kylie Jenner, who posted an image that reads “Make Instagram Instagram Again” and “stop trying to be tiktok.” The image had nearly 1.9 million likes on Tuesday.

Meta’s head of Instagram, Adam Mosseri, addressed the changes on Tuesday, saying that many of the features were still evolving.

“I need to be honest - I do believe that more and more of Instagram is going to become video over time,” Mr Mosseri said in a video posted on Twitter.

Earlier this year, Meta said it planned to slow the pace of some of its long-term investments and adjust hiring plans.

In May, the company disclosed a sharp slowdown in hiring, and in June, the company’s head of engineering told his managers in an internal memo to identify and report low performers so they could force those employees out.

The company on Tuesday also said it planned to raise the price of its Quest 2 virtual-reality headset by nearly 34 per cent to $US399.99, saying the costs to make and ship the products have been on the rise.

The company’s Reality Labs division, which includes VR hardware, posted revenue of $US452m

Analysts expected it to generate $US431m in quarterly sales.

Separately, the Federal Trade Commission is seeking to block Meta from acquiring Within Unlimited and its virtual-reality dedicated fitness app, Supernatural.

The deal, the FTC alleges, would lessen competition in the market and violate antitrust laws. Meta rejected the FTC’s position and said the purchase would be good for the development of the virtual-reality market.

The company also announced that come November, Mr Wehner will transition into chief strategy officer, a new role at the company.

Succeeding him as CFO will be Susan Li, Meta’s current vice president of finance.

Mr Wehner has served as Meta’s CFO since June 2014.

- The Wall Street Journal