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CNN business
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Meta on Wednesday reported the second quarterly revenue decline in its history since the IPO and warned that it is making “significant changes” to bring costs down ahead of 2023 as it faces an economic downturn that’s hitting its core online advertising business .
For the three months ended September, Meta (FB) reported revenue of $27.7 billion, down 4% year over year and slightly ahead of Wall Street analysts’ expectations. The Facebook parent reported its first-ever quarterly revenue decline in the June quarter.
The company reported net income of nearly $4.4 billion — less than half the amount it made in the same period last year and below analysts’ forecasts.
“We approach 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and become an even stronger company,” said Mark Zuckerberg, Meta’s founder and CEO, in a statement.
Meta’s shares fell almost 17% after the close on Wednesday after the results.
Demand for online advertising has declined in recent months amid rising inflation and fears of an impending recession. Tech companies like Google and Snap have also seen their ad revenue fall. Meta’s CFO David Wehner said in a call with analysts after the report that the average price per ad across Meta’s platforms fell 18% during the quarter.
At the same time, Meta’s user growth is slowing amid increasing competition from rivals like TikTok. Meta reported that it had 2.96 billion monthly active users on its core Facebook app at the end of the quarter, up 2% year over year. That’s down from the 6% growth rate in the year-ago quarter. The number of daily active users for the meta family of apps rose 4% to 2.93 billion, up from an 11% increase a year ago.
Zuckerberg noted on the call that Instagram now has more than 2 billion monthly active users and WhatsApp has more than 2 billion daily active users.
Those challenges to its core business come as Meta pours billions of dollars into an ambitious new bet to build a future version of the internet called the Metaverse that’s likely years away.
Wehner said operating losses from the company’s Metaverse ambitions, categorized under the Reality Labs unit, are expected to “increase significantly year-over-year” in 2023. Reality Labs lost nearly $3.7 billion in the September quarter and has cost the company a total of $9.4 billion for the year. The Reality Labs unit’s revenue also declined nearly 50% year over year in the September quarter.
Altimeter Capital, a Meta shareholder, wrote an open letter last week urging the company to cut its personnel expenses by at least 20%, its annual capital expenditures by at least $5 billion, and its investments in the Metaverse to no more than limit 5 billion dollars per year.
In Wednesday’s report, Wehner said the company is making “significant changes across the board to operate more efficiently.” Executives said the company expects headcount by the end of 2023 to be about the same as or slightly lower than the 87,314 reported at the end of September (a 28% year-over-year increase).
“We’re holding some teams back on headcount, shrinking others and investing headcount growth only in our highest priorities,” Wehner said. He also hinted that the company could downsize its physical office space.
Zuckerberg said on the conference call that the top three investment areas for the company in the coming year are its AI discovery engine, which powers Reels and other recommendations, ads, and business news, and its future vision for the Metaverse. Meta earlier this month unveiled its latest virtual reality headset, the Meta Quest Pro, touting its potential for business users.
For the last three months of the year, Meta expects quarterly sales of between $30 billion and $32.5 billion. At the high end, guidance would mean a 3.5% year-over-year decline from the same period last year.
