After years of the sales arrow only pointing up, meta — the company formerly known as Facebook — has turned in its first quarterly revenue decline.
For the second quarter of 2022, meta reported $28.82 billion on the top line, down 1% year over year. Net income fell 36%, to $6.69 billion, or $2.46 per share.
It also issued a weak forecast for Q3, and CEO Mark Zuckerberg said with the revenue slowdown the company is looking to reduce the size of its workforce. “Our plan is to steadily reduce headcount growth over the next year,” Zuckerberg said on the earnings call. “Many teams are going to shrink.”
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meta had 83,553 employees as of June 30, up 32% from a year earlier. “The fact that we hired a lot of people earlier this year means that our reported year-over-year headcount growth will still be substantial for the next few quarters, but it should continue to decline over time,” Zuckerberg continued. “Now this is a period that demands more intensity, and I expect us to get more done with fewer resources.”
meta’s Q2 results came in shy of Wall Street analyst consensus estimates of $28.94 billion in revenue and earnings of $2.61 per share, according to Refinitiv.
Q3 revenue is expected to be $26 billion-$28.5 billion, CFO Dave Wehner said in announcing the results — essentially flat to down compared with $28.3 billion in the third quarter of 2021. The outlook “reflects a continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty,” he said in a statement. meta also expects Q3 revenue for Reality Labs, its AR and VR division, to be lower than second-quarter revenue, which came in at $452 million (up 48% year over year).
The company’s flagship Facebook app had 1.968 billion average daily active users for June 2022, up 3% year-over-year and a slim gain of 8 million DAUs versus the prior quarter. Analysts expected a decline of 30 million Facebook DAUs in the period, per FactSet. Facebook monthly active users were 2.93 billion as of June 30, down 3 million from Q1.
The earnings report comes after the company’s blockbuster Q2 last year, when revenue soared 56% and net profit doubled to $10.39 billion.
In addition to broader economic headwinds and the ongoing impact of Apple’s iOS privacy changes, meta has faced growing competition from rivals, namely TikTok — and has been adding the “Reels” TikTok-like feature for short-form video to Instagram and Facebook in an attempt to catch up.
In Q2, meta saw a 30% increase in time people spent watching Reels videos across Facebook and Instagram, Zuckerberg said on the call — and he claimed Reels is on a $1 billion annual revenue run rate, even though meta isn’t yet monetizing Reels as effectively as other content formats.
But Instagram has seen a backlash from many users about the app’s shift to video, including from top influencers Kylie Jenner and Kim Kardashian. The sisters this week joined the call urging Instagram to stop trying to copy TikTok. Instagram head Adam Mosseri on Tuesday addressed the complaints, assuring users that photos will continue to be part of the app but that “more and more of Instagram is going to become video over time… So we’re gonna have to lean into that shift.”
Meanwhile, Zuckerberg has been trying to pivot his company toward the “metaverse,” starting with the tech company’s new name. meta’s Reality Labs, which comprise VR and AR businesses, has been a drag on earnings as the company pours billions into R&D on this front. Reality Labs’ operating loss widened to $2.81 billion versus a loss of $2.43 billion a year ago.
In a new headache for meta, the FTC announced Wednesday that it was suing to block the company’s proposed acquisition of Within Unlimited, which makes VR fitness app Supernatural. The agency, citing meta’s dominance in VR devices, alleged that “meta and Zuckerberg are planning to expand meta’s virtual reality empire with this attempt to illegally acquire a dedicated fitness app that proves the value of virtual reality to users.” The FTC noted that meta has acquired seven VR content studios, including the maker of the Beat Saber music game. meta said in a blog post that the FTC’s allegation that the deal was anticompetitive “in a dynamic space with as much entry and growth as online and connected fitness is simply not credible.”
In releasing Q2 earnings, meta also announced that Wehner will take on a new role as its first chief strategy officer, overseeing the company’s strategy and corporate development, effective Nov. 1, 2022. At the same time, Susan Li, currently VP of finance, will be promoted and serve as meta’s CFO.
Last month,Sheryl Sandberg said she will exit as meta’s COO this fall after 14 years with the company. She will remain a member of meta’s board of directors.
