Meta Platforms gave a gloomy forecast after seeing its first-ever quarterly drop in revenue on Wednesday. A global recession is coming, and the company’s digital ad sales are being hurt by competition.
In after-hours trading, shares of the Menlo Park, California-based company were down about 3.4%.
The company said that it expects to make between $26 billion and $28.5 billion in sales during the third quarter. IBES data from Refinitiv shows that analysts were hoping for $30.52 billion.
Total revenue, which is almost entirely made up of ad sales, went down by 1 percent from the same time last year to $28.8 billion on June 30. According to Refinitiv, $28.9 billion was what Wall Street thought the number would be.
The company said that its growth in users was a mixed bag.
Analysts expected that Facebook would have 2.94 billion monthly active users in the second quarter, but it only had 2.93 billion, an increase of 1% from the same time last year. Daily active users, on the other hand, easily beat expectations, coming in at 1.97 billion.
Meta, like many other global companies, is having some trouble making money because of how strong the dollar is. This is because sales in foreign currencies are worth less in dollars.
Meta said that, based on current exchange rates, it expected the growth of its sales to slow by 6% in the third quarter.
Still, the Meta results come at a time when online ad sales seem to be going in different directions for search and social media companies, with ad buyers cutting back spending on social media companies more than on search companies.
Alphabet, which is the biggest digital ad platform in the world, reported a rise in quarterly revenue on Tuesday. Sales from Google Search, which makes the most money for Alphabet, beat what investors had expected.
Last week, both Snap and Twitter missed their sales goals and warned of a slowdown in the ad market in the coming quarters. This caused a big sell-off in the sector as a whole.
The results show how Meta’s main social media business is being pushed in a unique way because it is competing with the short video app TikTok for users’ time and changing its ads business to work with the privacy controls that Apple Inc. AAPL.O put in place last year.
Meta said that Reels, a short video product that it is putting into users’ feeds more and more to compete with TikTok, was now bringing in more than $1 billion a year.
“Everything is having a big impact on them, and I’d probably give it a third, a third, and a third,” said Kim Forrest of Bokeh Capital Partners. She was talking about the economy, the slowing of the global ad market, and competition from TikTok and Apple.
“Meta has a problem because they’re trying to catch up with TikTok, and if the Kardashians say they don’t like Instagram…
Meta should really think about that.”
AI recommends about 15% of the content on Facebook and Instagram, and CEO Mark Zuckerberg said that number will double by the end of 2023.
The biggest social media company in the world is making a lot of expensive changes to keep its main business making money while also betting on “metaverse” hardware and software for the long term.
At least for now, the metaverse part of the business is mostly just a theory. Meta made $218 million in sales of devices like its Quest virtual reality headsets in the second quarter, which is less than last year’s $497 million.
Its Reality Labs unit, which makes technology for the metaverse like VR headsets, made $452 million in sales, which is less than the $695 million it made in the first quarter.
Meta will release Project Cambria, a mixed-reality headset for professionals, at the end of this year.
Meta first broke out the segment in its results this year, when it said that Reality Labs lost $10,2 billion in 2021.
Meta’s operating profit margin dropped from 43 percent to 29 percent in the second quarter. This is because costs went up sharply and sales went down.
In November, David Wehner, who is currently Meta’s chief financial officer, will become the company’s first chief strategy officer. Susan Li, who is currently the vice president of finance at Meta, will take over as CFO.