Growth is something that big tech firms appear to be constantly chasing. However, the fact of the matter is that these companies can’t grow forever.
In its financial report for the second quarter of the year, Meta reported that revenue had fallen one percent from $29.077 billion in Q2 2021 to $28.822 billion in the same quarter for 2022.
This dip in revenue comes because of weak advertising demand and Meta doesn’t expect this to improve by the next quarter.
“We expect third quarter 2022 total revenue to be in the range of $26-28.5 billion. 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. We also anticipate third quarter Reality Labs revenue to be lower than second quarter revenue. Our guidance assumes foreign currency will be an approximately 6% headwind to year-over-year total revenue growth in the third quarter, based on current exchange rates,” reads an outlook from chief financial officer, David Wehner.
Part of the harm to Meta’s advertising appears to be caused by Apple’s App Tracking Transparency. This feature allows Apple users to decide for themselves whether an app should be allowed to track their activity across other apps and the web. While great for consumers, it’s not good for marketers and Meta.
The second aspect Wehner highlights as a weight on Meta’s profit-seeking aspirations is Reality Labs. Just this week Meta increased the price of the Meta Quest 2 stating that the costs of production and shipping had forced its hand in this regard. That was seemingly a much needed move as Reality Labs saw revenue decline by as much as $2.8 billion compared to the same quarter a year ago.
Curiously, Meta goes on to say that key investments for the rest of the year are in Reels and artificial intelligence. This, Wehner says, “position us to have a stronger ad business especially when the macro [economic conditions] improves”. Don’t worry, the Metaverse is still being worked on, we just have no idea what it is aside from a platform for businesses to set up virtual businesses. Cool.
As for Reels, Meta has been pushing this feature on Instagram and Facebook for some time now and Wehner, thinks Meta is doing well in that regard.
“On Reels engagement, we’re pleased with how that is progressing. We think that we’re doing well. Obviously, there’s third-party tracking services that provide data on TikTok and other services, but we feel that we’re competing very effectively in terms of rolling out Reels on Instagram and Facebook and on both it’s growing very quickly. And we saw, as Mark mentioned, 30 percent increase from the time that people spent engaging with Reels across both Facebook and Instagram. Clearly, it’s above 20 percent of the time on Instagram and it’s growing as a percentage of time on Facebook. So we think we’re on a good track with Reels,” the CFO said.
It looks like Reels aren’t going anywhere anytime soon then. On that, we believe that Meta has some advantage here especially with its newly introduced Music Revenue Sharing feature for Facebook.
From the looks of things this one percent slide in revenue is a sign that Meta needs to be smarter about its advertising. This feels rather late though as Meta already highlighted that Apple’s ATT cost it $10 billion in 2021.
Not a good quarter for Meta, let’s see how, or rather if, it turns the ship around.
