Shrinking advertising budgets led to Meta Platforms reporting its first-ever decline in quarterly sales. The social media, which owns Instagram and Facebook, missed the quarterly forecast. It posted $28.8 billion revenue in the Secord quarter against analysts’ $ 28.9 billion average estimates.
Meta Platforms Inc. shares declined by more than 4% on Wednesday during late trading.
A Sluggish Economy Slows Ads Spending
Marketers are spending less on advertising because of economic pressures leading to Meta Ad Sales efforts hitting several snags. Apple Inc.‘s privacy rules have rendered ads on Instagram and Facebook less effective.
To compete with Tik Tok, short format videos and Reels from Facebook have been shown more to users. However, advertisers are yet to get comfortable, and it is not making much money.
On Wednesday, Meta said its current quarter estimates would be $26 -28.5 billion. This will fall short of the analysts’ estimates of $30.3 billion.
CEO Mark Zuckerberg said the economic downturn had broadly impacted the digital advertising business. Around 2.88 billion people use one of Meta’s social networks daily, lower than the 2.91 billion estimated by analysts.
California-based Meta Platform shares fell 4.5% to $169.58 in extending trading, having declined more than half of their value in 2022.
Mark Zuckerberg is trying his best to make his employees work and attract new users as Meta undergoes a period of immense change. Meta has included Reels to prevent the migration of its users to the Tik Tok app and is also paying them to post videos.
The company has changed its algorithms showing new content to users who do not follow them. Presently, nearly 15% of the content forms the feed to users who do not follow those accounts. On Instagram, the feed percentage is higher. According to Zuckerberg, the proportion of such feeds will double next year. He called the change one of the main business transformations right now.
Senior Tech Analyst at Bloomberg Intelligence, Mandeep Singh, said investors are focusing on the decline of 14% in Facebooks ads. According to him, it shows Facebook is increasing its ad loads frequency or the ad frequency shown on each post. This will result in an engagement problem.
Reels to Bail Out?
The executives at Meta say that Reels are increasing engagement on the app to reassure investors. Reels growth means cannibalization of Meta’s existing products. It is expected to help with revenue as the advertising income is currently around $1 billion a year.
Some competitors of Meta are also affected by a slowdown in advertisement spending. The market leader, Google, showed increased ad sales, particularly those deployed by direct response advertisers in search ads. Twitter’s revenue declined while it struggled to meet its sales target. Snap Inc. also was affected.
Facebook slowed its hirings as it tried to combat costs. It focuses on fewer projects like short-form video development and algorithmic recommendation engine.
