In trouble: Meta’s moneymaking machine
For the first time in a decade, Facebook’s revenue has plateaued.
Social media revealed its first-ever annual reduction in revenue for the second quarter, with $28.8 billion, and forecasted that growth in the third quarter would be much lower than this year’s first quarter decline. Meta’s parent company’s profit dropped by 36% to $6.7 billion. Zuckerberg-created metaverse Reality Labs lost $2.8 billion in the first quarter of the year.
In spite of Wall Street’s expectations for a first-ever slowdown in revenue growth, Meta’s earnings report on Wednesday showed a decline in revenue growth that confirmed the company’s newfound vulnerability. For Meta, the “Ask app not to track” prompt on iPhones has reduced the effectiveness of its ads by $10 billion last year. Advertisers are increasingly cutting back on their expenditure as the economy continues to weaken.
In the meantime, Meta is redesigning Facebook and Instagram to emphasize short videos and posts that its system suggests to people in order to compete with TikTok. It will be more than double the percentage of content that people see on Facebook and Instagram from accounts they don’t follow next year, according to Zuckerberg in a call with analysts. According to him, it’s a big investment to build the AI that will enable it.
A few months ago, Meta saw a fall in Facebook’s daily users, but it was able to reverse that trend by increasing Facebook’s daily users by 3% to 1.97 billion. There are currently 2.88 billion people using Meta’s social apps every day, a rise of 4% from the same time last year.
“Engagement patterns” on Facebook have been “stronger than we anticipated,” according to Zuckerberg, thanks partly to an increase in video consumption. Since the company cloned the Snapchat Stories format several years ago, he claims that the company’s short-form video format Reels, aimed at TikTok, is profiting quicker than the Stories model. Even though the company hopes Reels will generate revenue in the long run, it is prioritizing Reels in the short term because of the low profit margins.
Zuck: “I want us to get more done with fewer resources” in this moment of “intensity,” he said on the earnings call with analysts, repeating a recent statement he made to employees. “I believe that we will emerge from this era as a more disciplined and stronger organization.”