The identity crisis of the company Meta (formerly Facebook) is deepening, and now the criticism is heard outside Wall Street. Times are difficult for all the giants, but Mark Zuckerberg, the CEO and founder, provides a bleak forecast for the rest of the way, unlike the other companies. When it is clear to Zuckerberg that the dream of the metaverse is still far away and his pocket hurts, he must come up with a strategy that will help him along the way. The problem is that the regulators and legislators They notice it – and try to stop it as quickly as possible.
Meta’s quarterly results are not encouraging at all: the social media giant reported a profit of $2.46 per share and revenues of $28.82 billion. In both cases it missed market expectations, and for the first time in its history it also recorded a decrease in revenues compared to the previous year. If that’s not enough, the net profit plunged by 36% compared to the same period. This is the third quarter in which Meta’s net profit is falling, but such a sharp decline rate was experienced more than a decade ago.
1. Times are tough, and Zuckerberg predicts that it will last until 2023
The company reported a bad quarter and its forecasts for the third quarter are not promising either. Its expectation is for revenues of 28-30 billion dollars – which sent its share Meta to a decrease of 2.5% in late trading, but it is clear that the company’s mental calculation is carried out every day in the company’s series.
The company’s main business in terms of revenue is advertising. With the help of the large amount of information it collects about users, it can adapt the advertisements to them in the best way. Here, too, the company faces problems, and the division’s revenues in the quarter are lower than market estimates. The company’s ad business is increasingly hurt, advertisers are spending less because of a drop in demand driven by macroeconomic uncertainty, which leaves Meta and its companies competing for lower budgets. All of this is added to Apple’s privacy policy change that hurts it and prevents it from targeting iOS users in a targeted way.
“We seem to have entered an economic downturn that will have a broad impact on the digital advertising business. The situation looks worse than it was a quarter ago,” Zuckerberg said in the investor call. This of course turns on the red lights for the various shareholders, since as mentioned it is the company’s core businesses that are affected. Alongside this, the company’s shares have lost about half of their value since the beginning of the year. Of course, these results are not unique to Facebook, Snap and Twitter also reported disappointing numbers.
Zuckerberg surprised on the earnings call when he indicated that the slowdown in hiring will continue until 2023. Zuckerberg indicated that the company will even reduce the number of employees over the next year, as it tightens its belt in preparation for the economic slowdown. “This is a time that requires more intensity and I expect we will do more with fewer resources,” he said.
Although the company stated that the number of its employees increased by 32% compared to last year, and reached 83.5 thousand employees, but the slowdown in the rate of hiring as mentioned will continue. “Our plan is to steadily reduce headcount growth over the next year. Many teams are going to be reduced to shift resources to other areas of the company, and I want to give our leaders the ability to decide within their teams where to double, where to address attrition, and where to rebuild teams,” Zuckerberg explained. . According to a report in the New York Times, Zuckerberg has made it clear that he will fire underperforming employees, and that those who do not want to join the effort to improve the tools are welcome to leave.
2. Meta’s identity crisis is deepening, and it’s not just investors who are noticing it
The company that wants to be called “Meta”, cannot escape the bad reputation of “Facebook”. Beyond the incriminating documents that were leaked with the help of Francis Haugen, many sections of the public still raise an eyebrow at the group’s various services. If in the past the growth in terms of the number of users was clear, now the competition threatens it. The number of monthly active users (MAU) reported by the company is 2.93 billion users, the analysts expected 2.94 billion. It is important to note that this is quite a decrease compared to the number of users last year, when their number was 3.5 billion.
This is a key measure of the company’s performance, because the number of monthly active users measures the size of its user base across all its products – including Instagram, WhatsApp and Facebook. And the reason this is so important, because it can give an indication of how tough the competition can be. One of the competitors that particularly threatens Facebook is the Chinese social network TikTok, which attracts users and captures ad market share.
Bites into advertisers’ market shares / Photo: Shutterstock, XanderSt
This is why meta platforms have recently been offering more and more content like TikTok, only with a different name: Reels. According to Zuckerberg, Reels has reached $1 billion in annual revenue, but the product does not generate revenue as effectively as Stories and Newsfeed. Meta showed a 30% increase in users on Rails.
Facebook and Instagram are losing more of their old character and familiar and beloved DNA to compete with TikTok. Zuckerberg said in April that the company would use artificial intelligence to recommend content to users, rather than showing content from accounts they already follow. It mimics one of the familiar features of TikTok, and is a tough competition for Facebook.
And perhaps the best way to illustrate the identity crisis that Meta is experiencing here, is through criticism from outside Wall Street, but rather from Hollywood. The celebrities Kylie Jenner and Kim Kardashian, who together have about 687 million followers, recently attacked Meta and called on the company not to make another TikTok with a new name, but to “Make Instagram Instagram again”. This is of great importance, because celebs have tremendous power in these arenas over public opinion. In 2018 Jenner, for example, tweeted that she no longer uses the Snapchat app. The stock fell immediately and the app lost users so its revenue growth was cut by about 50%.
And what happens outside Wall Street, is also felt inside. Investors are carefully examining these trends, if meta will manage to free itself from the identity crisis, or if it will allow it to make it plunge further and further.
3. The metaverse dream is still a pain in the pocket and it will only continue
If one needs to introduce another element of the company’s identity crisis – it is the dream of the metaverse. In the last quarter, Meta’s Reality Labs unit, which is responsible for the development of the company’s metaverse and related technologies, presented results that were less than expected. The division reported revenues of $452 million in the second quarter, along with a large loss of $2.8 billion.
The metaverse vision is mostly painful for the meta in the pocket. Zuckerberg / Photo: Meta
Another negative forecast was added to the results: the division is expected to generate even less revenue in the third quarter. This explains another recent move by the company, of raising the prices of its virtual reality glasses, Quest 2, by $100. Consumers criticized the company for “pigs”, and in response it stated that the price increase was necessary due to the higher cost of production and shipping. Although Meta is a leader in this field, this market is still tiny compared to the advertising market.
4. The regulators understand the alternative strategy and try to curb it
In the background of it all, Meta is still dealing with regulators around the world, who have recognized that it is trying to make many acquisitions so that in the future it will own companies that will help it build the Metaverse. In the UK, it is being hampered in its acquisition of Giphy, and the Federal Trade Commission headed by Lina Kahn is seeking to block another acquisition by Meta, of the maker of the mixed reality fitness apps, Within Unlimited. According to regulators, these acquisitions harm competition and increase Meta’s dominance in the industry.
The person in charge of the legal department at Meta, Chief Operating Officer Sheryl Sandberg, who announced her departure about two months ago, participated in the earnings call for the last time. She did not have much news to share, but showed optimism and said that “despite the current challenges, I am very confident in the long term. We are facing a cyclical decline, but in the long term the digital advertising market will continue to grow. Advertisers will go where they get the highest return on investment and the ability to drive their business. We believe we will continue to perform very favorably compared to other advertising options.”