Facebook parent Meta reported more than 50% drop in profit and a second straight quarterly revenue decline, hit by weak advertising demand, increased competition from rivals like TikTok, and Apple’s iOS privacy changes, its financial results for the quarter ended September 30, 2022 revealed.
The social media giant’s shares dived in extended trading on a weak outlook as it projected another drop in the fourth quarter. The company said it expects fourth-quarter revenue to be in the range of $30 billion to $32.5 billion. Meta’s stock has already lost two-thirds of its value so far this year.
In the third quarter, Meta’s revenue fell 4% to $27.7 billion, from $29 billion in the prior-year quarter — its first-ever quarterly revenue decline in July. The company’s net income in Q3 decreased to $4.4 billion (or $1.64 per share), from $9.2 billion (or $3.22 per share), in the year-ago period, missing analysts’ expectations of $1.89 per share, according to Refinitiv estimates.
“While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth,” Meta Chief Executive Officer (CEO) Mark Zuckerberg said.
Moving forward, Meta plans to focus on three primary areas, including its AI discovery engine that is powering Reels and other recommendation experiences, its ads and business messaging platforms, and its future vision for the metaverse, Zuckerberg said.
Facebook, which rebranded itself as Meta last October, is focused on bringing the metaverse, an immersive digital realm to life, and is making significant investments in this area.
The revenue of its Reality Labs, which has researchers, developers, and engineers working on virtual reality (VR), and augmented reality (AR) gadgets, and its metaverse vision, was $285 million, down 49% year over year.
Reality Labs’ expenses were $4.0 billion, up 24% due primarily to employee-related costs and technology development expenses, the firm said. The unit’s operating loss widened to $3.7 billion from $2.6 as compared to the corresponding period of the last fiscal year.
“We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year,” Meta Chief Financial Officer (CFO) Dave Wehner, said during the company’s earnings call. “Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run,” he adds.
Meanwhile, the tech firm’s hiring pace slowed in the third quarter, consistent with its previously-stated plans as it added 3,700 net new hires in Q3, down from its Q2 net additions of 5,700, Wehner noted.
In 2023, Meta is going to focus its “investments on a small number of high-priority growth areas,” Zuckerberg said. “So that means some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year. In aggregate, we expect to end 2023 as either roughly the same size, or even a slightly smaller organisation than we are today.”
Earlier this month, a Business Insider report noted that Facebook could layoff as much as 15% of its workforce, which would be about 12,000 employees.
Meta, which also owns Instagram and WhatsApp, said approximately 2.9 billion people used at least one of its family of apps on a daily basis in September, and that approximately 3.7 billion people used at least one on every month.
Important numbers
Facebook’s daily active users (DAUs) were 1.98 billion, up 3% or 54 million compared to last year. DAUs represented approximately 67% of the 2.96 billion monthly active users (MAUs) in September. MAUs grew 48 million or 2% compared to last year.
Meta’s TikTok-like short-video product Reels has more than 140 billion plays across Facebook and Instagram each day, a 50% increase from six months ago, according to Zuckerberg. He believes that the company is gaining time spent share on competitors like TikTok, and added that on Instagram alone, people already reshare Reels 1 billion times a day.
“I believe the tougher prioritisation, discipline, and efficiency that we’re driving across the organisation will help us navigate the current environment and emerge an even stronger company,” Zuckerberg noted.
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