Meta sees first revenue dip, measurement headwinds still an issue

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Meta's revenue dipped 1% to US$28.8 billion during the second quarter of the year, marking its first revenue dip. This was slightly more than the estimated dip which Reuters recently reported would be 0.4%. Meta's Family of Apps ad revenue was US$28.2 billion, down 1%. CFO Dave Wehner said during the earnings call that ad revenue growth slowed throughout the second quarter as advertiser demand softened. "The deceleration has been broad-based across verticals, and we believe businesses are lowering their ad spend in response to the increased economic uncertainty," he said.

Foreign currency headwinds also increased throughout the second quarter. While it wasn’t a factor contributing to the deceleration in Q2, Wehner said the company is also continuing to face targeting and measurement headwinds such as Apple’s iOS changes, which it believes are contributing to the growth challenges across the digital advertising industry.

Meta expects Q3 revenue to fall further to between US$26 billion to US$28.5 billion, citing a continuation of the weak ad demand environment it experienced throughout the second quarter, which it believes is being driven by broader macroeconomic uncertainty. Within its Reality Labs segment, Q2 revenue was US$452 million, up 48%, driven primarily by Quest 2 sales. Reality Labs operating loss was US$2.8 billion in the second quarter. Wehner also anticipates Q3 Reality Labs revenue to be lower than the previous quarter.

"We can't control the timing of when things will bounce back, but I'll note that periods like this are when marketers re-evaluate their budgets and are even more focused on finding the highest performing advertising," CEO Mark Zuckerberg said.

At the same time, COO Sheryl Sandberg added that many of the macro factors impacting Meta's revenue are continuations of things the company has witnessed in previous quarters, such as the continued impact of the war in Ukraine, and the normalisation of eCommerce after the pandemic peak. "But there are also new challenges with rising inflation and uncertainty around a looming recession," she added.

Despite the current challenges, Sandberg is very confident for the long term. "We’re facing a cyclical downturn, but over the long run the digital ad 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 show up very favourably compared to other advertising options," she said.

On a user geography basis, year-over-year ad revenue growth was strongest in Asia Pacific and rest of the world at 13% and 11%, respectively, with both regions benefiting meaningfully from strong growth in click-to-messaging ads. North America and Europe declined 4% and 12%, respectively. Foreign currency was a headwind in all international regions, with Europe and Asia Pacific experiencing the largest impacts.

The total number of ad impressions in Q2 served across its services increased 15% and the average price per ad decreased 14%. Impression growth was driven by Asia Pacific and rest of world. The year-over-year decline in pricing was driven by a reduction in advertiser demand, the mix shift in ad impressions towards lower monetising surfaces and regions, and foreign currency depreciation.

Meanwhile, Meta's family daily active people was 2.88 billion on average for Jun 2022, an increase of 4% year-over-year. It's family monthly active people was 3.65 billion, also a 4% increase year-over-year. Its Facebook daily and monthly active users were 1.97 billion (+3%) and 2.93 billion (+1%) respectively.

Given the various challenges that Meta is currently facing, the company plans to steadily reduce headcount growth over the next year. Zuckerberg explained that many teams are going to shrink so it can shift energy to other areas. "I wanted to give our leaders the ability to decide within their teams where to double down, where to backfill attrition, and where to restructure teams while minimising thrash to the long term initiatives," he explained.

Zuckerberg added: "This is a period that demands more intensity, and I expect us to get more done with fewer resources." During its recent financial announcement, Meta also said that Wehner will take on a new role as Meta's first chief strategy officer, overseeing the company's strategy and corporate development. Susan Li, Meta's current VP of finance, will be promoted to CFO.

Meta isn't the only company to have been impacted by advertising headwinds. Snap and Twitter, for example, reported dismal results recently and while Alphabet saw ad revenue rise during Q2, there was still a dip in YouTube revenue and overall revenue for the company during the quarter lagged behind Wall Street expectations by nearly US$lion.

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