Meta reports earnings, falls below expectations

Facebook parent company Meta on Wednesday posted a lower-than-expected loss in revenue, underperformed on profitability, and gave an unexpectedly bleak forecast. The shares saw a 3.8% decline in extended trading. 

Facebook parent company Meta on Wednesday posted a lower-than-expected loss in revenue, underperformed on profitability, and gave an unexpectedly bleak forecast. The shares saw a 3.8% decline in extended trading. 

$2.46 earnings per share versus analysts' expected $2.59, according to Refinitiv data. Revenue was $28.82 billion in contrast to the expected $28.94 billion.

According to StreetAccount, there were 1.97 billion daily active users (DAUs) as opposed to the 1.96 billion anticipated.  While the number of Monthly Active Users (MUA) was 2.93 billion vs. 2.94 billion. The average revenue per user (ARPU) was $9.82 instead of the $9.83 predicted.

Ever since start of the year, the price of Meta shares has decreased by roughly 50%, highlighting investor worries regarding the sustainability of the company's primary online advertising business. Both Apple's iOS privacy upgrade from a year ago, which restricted Meta's ability to follow users, and the worsening economy, which forced several businesses to cut their advertising spending, have affected that division.

From the previous year, revenue decreased by roughly 1% in the second quarter. According to Meta the poor advertising demand the company recorded during the second quarter, which it believes is being fueled by broader macroeconomic uncertainties, continued into the third quarter.

On a conference call with analysts, Mark Zuckerberg, CEO of Meta, announced that due to the economic downturn, the company will cut jobs over the coming year.

Zuckerberg added that, this is a time that calls for greater focus, and he anticipates that Meta will accomplish more with less resources.

According to Refinitiv, third-quarter revenue will range between $26 billion to $28.5 billion, falling short of the $30.5 billion average analyst projection. This amounts to a predicted decrease from a year ago of between 2 and 11 percent.

“We expect third quarter 2022 total revenue to be in the range of $26-28.5 billion. This 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,” the company said.

One added challenge for Meta is the continued growth of short video app TikTok, which is snagging users and taking ad market share. Zuckerberg said on the call that Facebook’s Instagram Reels offering, which competes with TikTok, has reached $1 billion in annualized revenue. However, despite Facebook’s investment in Reels, the product doesn’t generate revenue as efficiently as Instagram Stories and the main news feed.

The continuous expansion of the short-form video app TikTok, which is enticing users and eroding sales growth for ads, presents an additional challenge for Meta. In the call, Facebook's Instagram Reels service, which competes with TikTok, was announced by Zuckerberg to have generated $1 billion in annual revenue. 

Outlook for the rest of the third quarter

According to Meta, Reality Labs revenue for the third quarter is expected to be less than revenue for the second quarter. According to its forecast, based on recent exchange rates, foreign exchange will be a drag to total revenue growth.

Additionally, the company stated that it will keep an eye on advancements regarding the sustainability of transatlantic data transfers and their possible implications on its European operations, as mentioned in prior calls.

In contrast to the previous outlook of $87-92 billion, it now projects total expenses for 2022 to be in the region of $85-88 billion.

Additionally, Meta anticipates 2022 "capital expenditures, including principal payments on finance leases, to be in the $30–34 billion range", which is a smaller range than its previous estimate of $29–34 billion.