🔒 Meta shares tumble nearly 20% after sales decline

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Meta Shares Tumble Nearly 20% After Sales Decline – with insight from the Wall Street Journal

The Facebook parent’s shares fell in off-hours trading after the company posted its second revenue decline in a row as it wrestles with a vortex of challenging business conditions.

By Salvador Rodriguez

Facebook parent Meta Platforms Inc. posted its second revenue decline in a row, as the social-media giant wrestles with a vortex of challenging business conditions that have combined to shave more than half a trillion dollars from its market value so far this year.

The company reported quarterly revenue of $27.7 billion, down more than 4% from a year ago, after posting a 1% decrease last quarter. Meta’s share price fell more than 5% on Wednesday, amid a broad selloff of tech shares, and is now trading at a price last seen in 2017.

Meta shares dropped a further 20% in off-hours trading following the earnings report.

Meta is battling a host of challenges, including the tough macroeconomic climate, growing competition from rival TikTok and the fallout from Apple Inc.’s ad-tracking changes, all of which have taken a toll on its massive advertising business.

At least some of those issues are being felt across Silicon Valley, with Google’s YouTube unit posting a decline in advertising revenue on Tuesday and Snap Inc. delivering disappointing results last week.

Meta founder and Chief Executive Mark Zuckerberg said he is encouraged by the progress in responding to the tougher environment. “I have to say that our product trends look better from what I see,” he said on a call with analysts. “I’m pretty confident this is going in a good direction.”

But Meta also is undergoing an ambitious and expensive pivot, away from its core social-media products including Facebook and Instagram, and toward a future centered around the so-called metaverse where users can live, work and play in an immersive online experience.

Meta’s Reality Labs unit, which is driving the company’s virtual-reality and metaverse efforts, posted revenue of $285 million for the quarter, a decline of nearly 49% from a year ago. This was due to lower sales of its Quest 2 virtual-reality headsets, Meta Chief Financial Officer David Wehner said. The unit had an operating loss of $3.7 billion, and the company said it expects that figure will grow significantly next year.

Horizon Worlds, Meta’s flagship metaverse product for consumers, has fewer than 200,000 monthly active users, far less than the company’s original goal of 500,000 users by the end of this year, according to company documents cited by The Wall Street Journal earlier this month.

The company didn’t provide new user figures for Horizon Worlds on Wednesday.

Meta said its average ad price decreased 18% on-the-year, as it adjusts to Apple’s changes that make it harder for Meta to track users and serve them personalized advertising. In the same quarter last year, the average price per ad climbed 22%.

The effects of Apple’s changes diminished in the third quarter, but that was offset by weak advertising demand, Mr. Wehner said.

The company said it also was hurt by the strong dollar and that if foreign-exchange rates had been constant, it would have posted a slight increase in revenue.

Meta reported a net profit of $4.4 billion for the third quarter. That represents the fourth quarter in a row that the company’s bottom line has fallen, something Meta hasn’t experienced in a decade.

For the quarter, advertising revenue came in at $27.2 billion, down nearly 4% year-over-year. Analysts predicted Meta’s advertising revenue would fall to $26.9 billion. Advertising represented 98.2% of the company’s total revenue.

The company said it plans to invest in head count growth “only in our highest priorities” and shrink some of its teams. It said it had more than 87,000 employees at the end of September, a 28% increase over the same period last year, and anticipates staying around that level.

Meta said it expects its 2022 total expenses to be in the range of $85 billion to $87 billion, narrowing from a previous forecast of between $85 billion and $88 billion. The company said it estimates its 2023 total expenses to be between $96 billion and $101 billion.

Meta is grappling with a digital advertising market in upheaval from surging inflation and other factors, including the war in Ukraine, that are causing a slowdown in ad spending.

“It’s tough a time to be a big social-media company right now,” said Debra Aho Williamson, principal analyst at Insider Intelligence. “You’re facing a lot of pressures on revenue, usage and the worsening economy on top of it.”

Before Wednesday, Meta shares had fallen nearly 60% and the company had lost more than $550 billion in market value in 2022.

In its efforts to combat TikTok, Meta has given priority to the development and growth of Reels, its short-form video format on Facebook and Instagram.

Meta is now seeing 140 billion Reels plays across Facebook and Instagram each day, which is a 50% increase from six months ago, Mr. Zuckerberg said.

“The trends look good, and we believe that we’re gaining time-spent share on competitors, like TikTok,” Mr. Zuckerberg said.

Reels, however, doesn’t monetize as effectively as the company’s other types of content, so as it pivots toward showing more short-form video, Meta is taking a quarterly revenue headwind of more than $500 million, Mr. Zuckerberg said. Meta expects to get to a more neutral place with this shift within the next 12 to 18 months.

“As Reels grows, we’re displacing revenue from higher-monetized surfaces,” Mr. Zuckerberg said. “That’s clearly the right thing to do.”

One area where Meta showed promise was in adding to Facebook’s massive user base, which came in at 1.98 billion daily active users. That was up from 1.97 billion three months ago. 

Meta said Instagram now claims more than 2 billion monthly active users, while WhatsApp’s user base has surpassed 2 billion daily active users, with North America being the messaging app’s fastest-growing region.