Meta Platforms Inc. gave a forecast for revenue in the fourth quarter that was on the low end of analysts’ estimates, showing the social-media platform continues to struggle with a weak advertising market amid an economic slowdown.
The owner of Instagram and Facebook said it sees US$30 billion to US$32.5 billion in revenue in the last three months of the year. Analysts had been expecting US$32.2 billion, according to estimates compiled by Bloomberg. The shares tumbled more than 12 per cent in extended trading and are down more than 55 per cent this year through Wednesday’s close.
Meta, which makes most of its revenue from advertising, is grappling with a decline in marketers’ budgets due to economic uncertainty and a recent change in Apple Inc.’s privacy rules that made social media ads less effective. The company has cut costs by slowing hiring and narrowing priorities to focus on keeping its social media platforms relevant and expanding virtual reality offerings.
But with Meta in a revenue slump potentially for the long haul, Chief Executive Officer Mark Zuckerberg said the company is making “significant changes across the board to operate more efficiently,” and has “increased scrutiny on all areas of operating expenses.”
This year, Meta has transformed a number of key parts of its business. As ByteDance Ltd.’s popular TikTok app has won users’ time and accustomed them to a feed of vertical videos based on users’ interests, Meta has changed Facebook and Instagram’s experiences to show more algorithmically-chosen content and less from the people you follow. Its short-form videos, called Reels, are meant to increase user engagement and revenue opportunities on the app.
The company, which changed its name from Facebook to Meta a year ago, is also betting big on the metaverse, virtual-reality-fueled gathering places that Zuckerberg thinks will host the future of work and communication. The effort is losing Meta billions, and the company expects to lose more money on the metaverse bet next year.
Meta now expects total expenses for this year to be US$85 billion to US$87 billion. For 2023, that number will grow to an expected US$96 billion to US$101 billion, it said on Wednesday.
“While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth,” Zuckerberg said in a statement. “We’re approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company.”
Meta’s legacy social media products need to remain popular enough to generate the advertising revenue that will fund the metaverse vision. In the third quarter, 4 per cent more people spent time on Meta’s platforms every day, compared with the same period last year, with 2.93 billion daily active users. Monthly, the tech giant saw 3.71 billion active users.
“Meta is on shaky legs when it comes to the current state of its business,” said Debra Aho Williamson, an analyst at Insider Intelligence. “Zuckerberg’s decision to focus his company on the future promise of the metaverse took his attention away from the unfortunate realities of today: Meta is under incredible pressure from weakening worldwide economic conditions, challenges with Apple’s App Tracking Transparency policy, and competition from other companies, including TikTok, for users and revenue.”
But Meta isn’t the only tech company to succumb to the new economic reality. On Tuesday, Alphabet Inc. reported third-quarter earnings and revenue that missed analysts’ expectations. Google, which had been uniquely resilient to this year’s digital ad slowdown, and YouTube both saw sales fall short of estimates. Last week Snap Inc. reported the slowest quarterly sales growth ever even after spending the year shrinking and refocusing its business. Shares of Snap and Pinterest Inc. both fell after Meta’s report.
In the third quarter, Meta posted revenue of US$27.7 billion, slightly beating analysts’ average estimate for US$27.4 billion. Net income fell 52 per cent from the same quarter last year to US$4.4 billion. Earnings per share were US$1.64, below the US$1.88 per share average estimate.
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