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The parent company of Facebook has reported its first drop in sales since going public.

Facebook’s parent company, Meta (FB), reported $28.8 billion in revenue for the quarter ending in June, down 1% from the same period a year ago and the first annual revenue decline since going public in 2012.

Much more precipitous was the decline in the company’s profit. Compared to the same period a year ago, net income fell by 36%, to nearly $6.7 billion. In light of the recent economic downturn, Meta reported a 14 percent year-over-year decline in the average price per ad.

From the first to the second quarter of 2022, the number of monthly active Facebook app users dropped from 2.936 billion to 2.934 billion. Mark Zuckerberg, CEO of Meta, explained the drop in Wednesday’s conference call with investors, saying it was to be expected due to “internet blocks related to the war in Ukraine.” Daily Facebook users, he said, keep rising.

A stricter performance review process and an emphasis on increasing worker productivity have been rumoured to be on the horizon for Meta in recent weeks as the company attempts to weather a period of slowing growth and tough competition from newer rivals like TikTok. These difficulties coincide with broader macroeconomic pressures such as rising inflation and recession fears.

Facebook parent posts first revenue decline as a public company

It was the first annual revenue decline for Facebook’s parent company Meta (FB) since it went public in 2012, when it reported $28.8 billion in revenue for the quarter ending in June, down 1% from the same period a year ago. The decline in the company’s profit was much more dramatic. Revenue was down 36% to nearly $6.7 billion from the same period last year. Meta reported a 14 percent year-over-year drop in the average price of advertisements due to the current economic downturn. The number of people using Facebook’s mobile app on a monthly basis fell from 2.93 billion to 2.93 billion between the first and second quarters of 2022. The Chief Executive Officer, Mark Zuckerberg.

Sales are expected to continue to drop for the company into the next quarter. Meta forecasted a range of $26 billion to $28.5 billion in sales for the current quarter. Even at the upper end of the range, that would still be a decrease of 1.76 percent from the previous year. Meta explained the prediction with weaker-than-expected demand for online advertisements due to the ongoing economic uncertainty and lower revenue from its virtual reality unit, Reality Labs. Twitter and Snap, along with other tech companies, are experiencing decreased advertising revenue as a result of the economic downturn. Ad targeting was already difficult for Meta before Apple’s changes to app tracking made things even worse.

After the earnings report was released on Wednesday, Meta shares dropped as much as 5% in after-hours trading before recovering somewhat. The FTC moved to block Meta’s acquisition of VR company Within hours before the earnings report was released, alleging that the tech giant is illegally trying to grow its “virtual reality empire.” Meta has called the injunction “wrong on the facts and the law,” but it does show the regulatory roadblocks that may be in the way of the company’s expansion into the virtual reality market.

The stakes are high for that department of the company. Future success for Meta is staked on a virtual and augmented reality-based internet it calls the “metaverse,” which is still largely theoretical at this point. There is a high price to pay for this change. Meta reported a quarterly loss of $2.8 billion at its Reality Labs division. On Wednesday’s conference call, Meta’s CFO Dave Wehner said that the company’s mergers and acquisitions are “”acquisitions are a key part of our strategy to build the metaverse, and we intend to keep looking for more opportunities to grow our business in the face of FTC opposition.

A slowdown in revenue growth due to reduced ad spending, and a lack of innovation and introduction of new user-friendly features, are just two of the problems that the social media company will have to contend with in the coming months “According to an investor note written by senior analyst Jesse Cohen of Investing.com after the earnings report was released. However, Cohen added that investors “need to worry about the negative impact of potential regulatory actions by the U.S. government.”

During the call, Zuckerberg also discussed the company’s plans to become a “discovery engine” by increasing the proportion of suggested posts that appear in Facebook and Instagram users’ feeds relative to content from accounts they already follow. This week, a viral post pleading to “Make Instagram Instagram again” was reposted by Kim Kardashian and Kylie Jenner, signalling a tipping point in user backlash against these changes.

While expanding the company’s discovery features, Zuckerberg emphasised that “we are still a social company.” He continued by saying that currently AI recommends about 15% of the content that appears in users’ Facebook feeds (and slightly more on Instagram). By next December, it anticipates that number will have more than doubled. Sheryl Sandberg, COO of Meta, tried to reassure shareholders on the company’s final call with her role last Wednesday by saying, “Meta is a company that has shown extraordinary resilience” after she announced her departure from the company last month.

We’ve gone through some major changes, like going from desktop to mobile or from Feed to Stories, she said. Reels, our discovery engine, business messaging, management of our ad system, and most importantly, participation in the development of the metaverse, all present substantial opportunities for our company. A new executive at Meta was named on Wednesday. On November 1, Wehner will take over “the strategy and corporate development” of Meta as the company’s first chief strategy officer. Susan Li, currently Vice President of Finance, will be promoted to Chief Financial Officer.

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