Facebook, WhatsApp's parent company reports revenue decline for first time
What's the story
Meta, the owner of Facebook, Instagram, and WhatsApp, has announced its Q2 earnings report, and it is not pretty. For the first time since it went public in 2012, the company saw a year-over-year decline in revenue. It is now in the middle of a tough period mired with economic and regulatory turbulence. Meta was also sued by the Federal Trade Commission on Wednesday.
Context
Why does this story matter?
Meta has recorded a quarterly revenue decline for the first time. Yes, it is facing several challenges, but challenges are not new to Meta. The money-making machine of the company has powered through several litigations and scandals before this. But things are different this time as predictions suggest that the growth in the third quarter could fall even more.
Quarterly report
The company saw a 36% dip in its quarterly profit
In its Q2 earnings report, Meta reported that its revenue dropped from $29.07 billion a year earlier to $28.82 billion, a 1% YoY decline. Its profit went down 36% in the April-June period, from $10.39 billion to $6.69 billion. During the same period, the daily active users on its apps, including Facebook, Messenger, Instagram, and WhatsApp, increased by 4% to 2.88 billion in total.
Reasons
Meta's poor performance was not unexpected
Meta's revenue and profit decline were not unexpected. Wall Street had predicted a profit of $7.04 billion on revenue of $28.9 billion. According to the company, its humdrum performance in the quarter was due to decreasing demand for digital advertising and broader economic uncertainty. Sheryl Sandberg, the outgoing COO, blamed the poor performance on the depreciation of the Euro.
Official words
Situation seems worse than last quarter: Mark Zuckerberg
Mark Zuckerberg, Meta's CEO, had some carefully crafted words about the company's uninspiring quarter. He said, "we seem to have entered an economic downturn that will have a broad impact on the digital advertising business." "The situation seems worse than it did a quarter ago," he added. The same sentiment was reflected in the company's projection for the current quarter.
General challenges
A strong dollar has impacted revenue from global sales
Companies like Meta that depend on online advertising have been hit hard by the slowing economy. The demand for online ads has decreased considerably. In Europe, the advertisement market has also been affected by the Russia-Ukraine situation. Add to that, the strengthening dollar has impacted the revenue generated from global sales. Revenue from advertisements has also been affected by the waning pandemic.
Hurdles
Apple's privacy change and TikTok have affected Meta's revenue-making potential
Apart from general issues, Meta is also fighting its own battles on different fronts. Apple's 'Ask app not to track' privacy change has made the company incapable of delivering targeted advertisements on iPhones, costing $10 billion in ad revenue last year alone. The ongoing battle with TikTok has also affected the company's revenue. Meta is now revamping Instagram to look more like TikTok.
Information
Some investors are skeptical about metaverse
Another major challenge faced by Meta is Zuckerberg's dream project - metaverse. The CEO has made it clear that it may take years for the endeavor to come to fruition, but the high expense of the project has made some investors skeptical.
Recovery
Meta expects Reels to be a major source of revenue
Zuckerberg has tried to reign in and control the expenses of the company. During the earnings call, he said, "This is a period that demands more intensity, and I expect us to get more done with fewer resources." The company has also been concentrating on Reels, as it expects Reels to be a major revenue driver in the coming years.