Meta Platforms Inc META.O issued a gloomy forecast after recording its first ever quarterly decline in revenue, with recession fears and competitive pressures weighing on its digital ads sales.
Shares of the California-based company were down about 4.6 pct in extended trading. The company said it expects third-quarter revenue to fall to USD 26 billion and USD 28.5 billion, which would make it a second year-over-year drop in a row. Analysts were expecting USD 30.52 billion, according to IBES data from Refinitiv. Total revenue, which consists almost entirely of ad sales, fell 1 pct to USD 28.8 billion in the second quarter ended June 30, from USD 29.1 billion last year. The figure slightly missed Wall Street's projections of USD 28.9 billion, according to Refinitiv. The company, which operates the world's largest social media platform, reported mixed results for user growth. Monthly active users on flagship social network Facebook came in slightly under analyst expectations at 2.93 billion in the second quarter, an increase of 1 pct year over year, while daily active users handily beat estimates at 1.97 billion. Like many global companies, Meta is facing some revenue pressure from the strong dollar, as sales in foreign currencies amount to less in dollar terms. Meta said it expected a 6 pct revenue growth headwind in the third quarter, based on current exchange rates. Still, the Meta results also suggest that fortunes in online ads sales may be diverging between search and social media players, with the latter impacted more severely as ad buyers reel in spending. Alphabet Inc GOOGL.O, the world's largest digital ad platform, reported a rise in quarterly revenue on Tuesday, with sales from its biggest moneymaker - Google search - topping investor expectations. Snap Inc SNAP.N and Twitter TWTR.N both missed sales expectations last week and warned of an ad market slowdown in coming quarters, sparking a broad sell-off across the sector. On top of economic pressures, Meta's core business is also experiencing unique strain as it competes with short video app TikTok for users' time and adjusts its ads business to privacy controls rolled out by Apple Inc AAPL.O last year. The company is simultaneously carrying out several expensive overhauls as a result, revamping its core apps and boosting its ad targeting with AI, while also investing heavily in a longer-term bet on ‘metaverse’ hardware and software. Meta executives told investors they were making progress in replacing ad dollars lost as a result of the Apple changes but said it was being offset by the economic slowdown. They added that Reels, a short video product Meta is increasingly inserting into users' feeds to compete with TikTok, was now generating over USD 1 billion annually in revenue. However, Reels cannibalises more profitable content that users could otherwise see and will continue to be a headwind on profits through 2022 before eventually boosting income, executives told analysts on Wednesday. “They are being greatly affected by everything,” Bokeh Capital Partners' Kim Forrest said, referring to the economic slowdown as well as competition from TikTok and Apple. “Meta has a problem because they're chasing TikTok and if the Kardashians are talking about how they don't like Instagram ... Meta should really pay attention to that.” On Monday, two of Instagram's biggest users, Kim Kardashian and Kylie Jenner, both shared a meme imploring the company to abandon its shift to TikTok-style content suggestions and "make Instagram Instagram again." CEO Mark Zuckerberg did not appear to be swayed, however. About 15 pct of content on Facebook and Instagram is currently recommended by AI from accounts users do not actively follow, and that percentage will double by the end of 2023, he told investors on the call. For now, at least, the metaverse part of Meta's business remains largely theoretical. In the second quarter, Meta reported USD 218 million in non-ad revenue, which includes payments fees and sales of devices like its Quest virtual reality headsets, down from USD 497 million last year.