For the first time in its history, Meta’s revenue fell

Meta, Facebook’s parent company, just released its earnings for the second quarter of 2022, and it was yet another quarter of declining profits. Total revenue of $28.8 billion was down 1% from the same quarter last year, but net income fell 36% to $6.7 billion. Making nearly $7 billion in profit is not a bad quarter for anyone, but the size of the drop from a year ago is significant. And, according to the Wall Street Journal, this is the first-ever revenue drop for Meta / Facebook, so even though it’s only one percent, it’s significant.

Credits: Carlos Barria / reuters

Revenue from advertising and Meta’s “family of apps” remained essentially flat year over year, while Reality Labs (home to hardware like the Meta Quest and other metaverse-related initiatives) increased by 48 percent to $452 million. Reality Labs, on the other hand, accounted for a $2.8 billion loss this quarter, a 15% increase over the same period last year. At this rate, Reality Labs is likely to lose Meta for more than the $10 billion it cost the company in 2021. Indeed, Reality Labs revenue is expected to be lower in the third quarter, according to the company.
This comes on the same day that the FTC announced its intention to block Meta’s proposed acquisition of Supernatural VR workout app maker Within, which was announced last year. “Rather than competing on merit, Meta is attempting to buy its way to the top,” said John Newman, deputy director of the FTC’s Bureau of Competition.

In June, Meta announced that its family of apps (which includes Facebook, Instagram, WhatsApp, and Messenger) had 2.88 billion daily active users and 3.65 billion monthly active users, both of which were up 4% year on year. However, growth on Facebook was slower — average daily and monthly users increased by only 3% and 1%, respectively.

A somewhat unusual leadership change announcement is also buried in today’s press release. David Wehner, currently Meta’s Chief Financial Officer, will join the company as its first Chief Strategy Officer on November 1st. When this change takes effect, Susan Li, VP of Finance, will be promoted to CFO. As CSO, Wehner will “oversee the company’s strategy and corporate development,” presumably with broader responsibilities than his current position.

On today’s investor call, CEO Mark Zuckerberg stated that about 15% of the content people see on Facebook and Instagram are AI-driven “recommendation” posts, which he expects to double over the next year. So, if you’re already frustrated by Meta’s drastic changes to Facebook and Instagram, don’t expect things to change anytime soon.

On the company’s second-quarter earnings call, CEO Mark Zuckerberg stated that the “company will steadily reduce headcount growth over the next year” as it deals with revenue declines due to shrinking digital advertising margins.

“This is a period that demands more intensity, and I expect us to get more done with fewer resources,” Zuckerberg said, adding that many Meta teams will shrink in order to shift energy to other areas, and he wanted to give company leaders the ability to “decide within their teams where to double down, where to backfill attrition, and where to restructure teams while minimising thrash to the long term initiatives.”

Sheryl Sandberg, Facebook’s outgoing chief operating officer, expressed confidence that the “digital ad market will continue to grow over time, and advertisers will go where they get the highest return on investment and ability to drive their business.”

Sandberg, the company’s massive advertising business’s chief architect, has announced her departure in June of this year.

“Meta is a company that has demonstrated extraordinary tenacity.” “We have repeatedly demonstrated that we are ready to respond quickly and at scale to changes in consumer behaviour, the macroeconomic landscape, and the needs of our advertising partners,” she said.

Similarly, Zuckerberg stated that the reported year-over-year headcount growth will be “substantial for the next few quarters due to the large number of people hired earlier this year, but it should continue to decline over time.” According to the company, it added over 5,700 net new hires in Q2, mostly in technical functions, and ended the quarter with over 83,500 full-time employees, a 32 percent increase over the previous year.

The company first mentioned “slowing its hiring plans” in May of this year, and Zuckerberg told employees earlier this month that they have cut plans to hire engineers by at least 30 percent this year, warning them of “serious times” ahead.

Meta’s quarterly results also coincided with a broader decline in the digital advertising market, with rivals such as Google, Twitter, and Snap experiencing slowing growth. Alphabet, Google’s parent company, also reported its slowest quarterly growth in two years on Tuesday. Google, Apple, Amazon, and other technology companies have also stated that, given the current economic conditions, they will hire fewer people.

Mark Zuckerberg has warned Meta employees that they will be laid off after the tech giant’s revenue fell for the first time in its history, along with profits.

‘Many teams will be reduced so that we can shift energy to other areas within the company,’ he said during an earnings call on Wednesday.

Zuckerberg, the CEO of Facebook parent company Meta, ominously stated that his company would also reduce ‘headcount growth over the next year.’

Meta, which also owns WhatsApp and Instagram, reported $28.82 billion in revenue for the second quarter, a 1% decrease from the previous year and less than Wall Street analysts expected.

This is the first time in the company’s history that revenue has declined. Facebook, the company’s flagship product, was launched in 2004.

Even more concerning, net income – profits – fell 36% from the previous quarter to $6.7 billion.

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