Meta Platforms Reports its First-Ever Sales Decline - Shares Plunge

Meta Platforms (META), the social media giant that owns Facebook and Instagram, disappointed markets after reporting its first-ever quarterly sales decline, citing reduced spending from advertisers. Meta Platforms reported late Wednesday that Q2 revenue fell to $28.8 billion, missing the consensus of $28.9 billion, and forecasting Q3 revenue of $26.0-$28.5 billion, well below the consensus of $30.3 billion.

A lower advertising sales level for Meta Platforms is hitting the company’s bottom line.  Advertisers are spending less due to various economic pressures, which leaves social media and internet companies competing for smaller advertising budgets.  Also, Apple’s new privacy rules have made ads on Facebook and Instagram less effective.

To compete with rival TikTok, Facebook and Instagram have been showing users more short-form videos called Reels, a format advertisers are still becoming used to and one that is not currently as profitable.  Meta Platforms CEO Zuckerberg said in an earnings call Wednesday that “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 last quarter.” 

Shares of Meta Platforms have lost half of their value this year and are down -6% today on the disappointing Q2 earnings report.  Meta Platforms is struggling to attract new users to its social networks as an average of 2.88 billion people used one of Meta’s social networks in Q2, below the average estimate of 2.91 billion.  The company is trying to attract younger users and prevent migration to ByteDance’s TikTok app.

To combat the slump in advertising, Meta Platforms is trying to curb costs by slowing hiring and reducing spending in the Metaverse, the virtual reality world that CEO Zuckerberg thinks consumers will eventually work, shop, and communicate through. Meta’s Reality Labs unit, which focuses on virtual and augmented reality, posted Q2 revenue up +48% to $452 million from sales of virtual reality headsets.  However, the unit also reported a loss of -$2.81 billion, wider than a year earlier. 

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