Meta, the parent company of Facebook and Instagram, reported a 4% drop in sales from July to September compared to the same period last year, from $29 billion to $27.7 billion. On Wednesday, shares plummeted as a result of the announcement.
The company claimed the losses mirrored the larger economy’s uncertainties as businesses cut back on digital advertising and struggled with inflation.
Market Competition
Meta’s financial difficulties are typical of comparable businesses. Alphabet announced Tuesday that income from Google advertising was $54.5 billion, down from $56.3 billion the previous quarter. YouTube, which is also owned by Alphabet, saw its ad revenue fall to $7.1 billion from $7.3 billion.
“These are trying times,” said Scott Kessler, an analyst at investment research firm Third Bridge.
“At this point, digital advertising is problematic,” said Kessler. “That is due to the economy as well as the modifications made by Apple.”
Apple announced a new privacy guideline in the App Store last October. Apps must now seek users for permission before tracking their data. As a result, companies like Meta have found it more difficult to target people with tailored digital ads across their platforms.
Revenue Drop
According to Kessler, Meta derives roughly two-thirds of its revenue from small businesses – a type of advertising known as performance advertising.
“That is intended to capitalise on consumers essentially asking for or being shown advertisements for specific types of products and services.” (For example, users of Facebook and Instagram who do a lot of holiday shopping may begin to see adverts from companies on those platforms.)
The company’s losses are increased by the fact that it is investing in CEO Mark Zuckerberg’s aim of building an all-encompassing virtual reality world known as the metaverse. On a call with investors on Wednesday, Zuckerberg stated that efforts in the metaverse and artificial intelligence would continue.
“It would be a mistake for us not to focus on these areas, which I believe will be critically essential in the future,” Zuckerberg added. “I believe that our work here will be historic in nature, laying the groundwork for an altogether new way that we will connect with one another.”
Despite the financial difficulties, Zuckerberg stated that daily users of Meta’s services, which include WhatsApp, increased by 4% year on year and currently total 2.93 billion worldwide.
Three months after posting its first-ever sales decline, Zuckerberg announced that the firm will slow hiring. This did not occur in the most recent quarter, as Meta increased by roughly 4,000 personnel to a total of more than 87,000 as of September 30.
Layoff Would Come
While some hiring will occur in “high priority sectors,” he expects most other teams to remain steady or decline over the coming year.
“At least on some level, they’ve begun the process of taking a more conservative approach to growth in the face of an economic background that is uncertain at best and recessionary at worst,” said Kessler.
Investors are still getting nervous.
Brad Gerstner, a long-term Meta stakeholder, wrote an open letter to Zuckerberg and Meta’s board of directors on Monday, “strongly encouraging Meta to streamline and focus its route forward.”
Gerstner also proposed that the corporation reduce its headcount by 20%.
“In order to attract, motivate, and keep the greatest individuals in the world, Meta must re-establish trust with investors, employees, and the tech community,” the letter stated.
While Meta’s financial health may represent a decline in the digital advertising business, according to Kessler, it does not reflect the larger IT industry or demand for technological services in general.
Microsoft, for example, recorded $50.1 billion in sales for the fiscal quarter ending in September this year, up from $45.1 billion in the same quarter previous year.
