Meta on Wednesday reported its second-quarter revenue decline since its IPO and warned it was making “substantial changes” to cut costs heading into 2023.
As the three months ended in September, Meta (FB) reported $27.7 billion in revenue. That was down 4% from the year-ago quarter and slightly above Wall Street analyst expectations. Facebook’s parent company reported its first-ever quarterly revenue decline in the June quarter.
The company reported a net profit of nearly $4.4 billion. This is less than half the year-ago quarter and below analyst expectations.
Founder and CEO Mark Zuckerberg said in a statement:
Meta shares fell nearly 17% after Wednesday’s close.
Demand for online advertising has declined in recent months amid rising inflation and fears of an impending recession. Tech companies such as Google and Snap have also seen their advertising revenue decline. David Wehner, the CFO of Meta, 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, the company’s user growth has slowed amid increasing competition from rivals such as TikTok. Meta reports that the core Facebook app had 2.96 billion monthly active users at the end of the quarter, up 2% year-on-year. This is down from his 6% growth rate in the same period last year. The number of daily active users on Metafamily’s app has grown 4% to 2.93 billion, up from 11% a year ago.
Zuckerberg said in a phone call that Instagram now has more than 2 billion monthly active users, and WhatsApp has more than 2 billion daily active users.
These challenges to the company’s core business have arisen by pouring billions of dollars into an ambitious new venture to build a future version of the Internet called the Metaverse.
Wehner said the company’s operating loss from the Metaverse ambitions, which falls under its Reality Labs division, is expected to “increase significantly year-on-year” in 2023. Reality Labs lost about $3.7 billion in its September quarter and incurred expenses The company has earned a total of $9.4 billion this year so far. Revenue for the Reality Labs division also fell nearly 50% year-over-year in the September quarter.
Meta’s shareholder Altimeter Capital wrote an open letter last week saying it would cut labor costs by at least 20%, reduce annual capital spending by at least $5 billion, and cut Metaverse Nr. by $5 billion annually.
In a Wednesday report, Wehner said the company is “making significant changes across the board to operate more efficiently.”
Wehner said, “Executives said the company expects headcount by the end of 2023 to be similar to or slightly lower than the 87,314 reported at the end of September (up 28% year-on-year). We keep some teams understaffed, others downsize, and invest in headcount growth only for our top priorities.” He also hinted that the company could shrink its physical office space.
Zuckerberg said on a conference call that the company’s top three areas of investment over the next year are reel and other recommendations, advertising, an AI discovery engine that powers the business news, and the future vision of the Metaverse. Earlier this month, Meta unveiled its latest virtual reality headset, the Meta Quest Pro, touting its potential for business users.
For the last three months of the year, the company expects quarterly revenue to be between $30 billion and $32.5 billion. At the high end, the guidance implies a year-on-year decline of 3.5% from the same period last year.
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