"Entering Economic Recession?" Facebook Parent Company Meta Reports First Ever Quarterly Revenue Decline (Comprehensive)

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Meta, the parent company of social networking service (SNS) Facebook, recorded its first-ever quarterly revenue decline in the second quarter. The slowdown in the advertising market due to recession concerns and Apple's strengthened privacy protections have significantly reduced personalized advertising revenue on Facebook and Instagram, continuously impacting Meta's performance. Mark Zuckerberg, Meta's Chief Executive Officer (CEO), stated, "It seems we have entered a recession," and assessed that the market situation has worsened further.

Advertising Revenue Hit by Recession Concerns and Apple Regulations

According to Bloomberg and others on the 27th (local time), Meta announced in its earnings report that its revenue for the second quarter (April to June) was $28.822 billion (approximately 37.9 trillion KRW), a 1% decrease compared to the same period last year. This marks Meta's first-ever quarterly revenue decline and falls short of market expectations ($28.9 billion). Earnings per share were $2.46, below the market forecast of $2.59.

The main reasons for Meta's deteriorating performance are the reduction in advertising spending due to recession concerns and decreased advertising revenue caused by Apple's strengthened privacy regulations. Bloomberg analyzed, "Due to various economic pressures, marketers have reduced spending, cutting advertising costs on platforms like Meta," adding, "Apple's privacy regulations are making ads on Facebook and Instagram less effective."

Additionally, Meta's Reality Labs division, responsible for the metaverse, virtual reality (VR), and augmented reality (AR), recorded $452 million in revenue in the second quarter but posted a net loss of $2.8 billion. Meta added that the division's losses are expected to worsen in the third quarter compared to the second.

CEO Zuckerberg said, "We seem to have entered a recession that broadly impacts the digital advertising business," adding, "It is always difficult to predict how deep or long this downturn cycle will be, but the situation is worse than a quarter ago." In fact, Meta revealed that the average advertising price dropped 14% compared to a year ago. In the second quarter of last year, the average advertising price had increased by 47% compared to the previous year.

However, Meta's daily active users in the second quarter this year were counted at 1.97 billion. After recording 1.929 billion in the fourth quarter of last year, marking the first-ever quarter-over-quarter decline, the number rebounded to 1.96 billion in the first quarter of this year and increased by 10 million more in the second quarter. Initially, the market expected a decrease in daily active users in the second quarter, but the number actually rose.

Gloomy Outlook for Q3... Tightened Management Including Workforce Reduction Expected

Mark Zuckerberg, CEO of Meta [Photo by AP]

Meta forecasted its third-quarter (July to September) revenue to be between $26 billion and $28.5 billion. Considering that the market expects Meta's third-quarter revenue to be $30.3 billion, this is significantly below expectations. Meta explained, "This forecast reflects the continued weakening of advertising demand experienced during the second quarter," attributing it to the broad uncertainty in the macroeconomic environment.

Like Meta, Alphabet, the parent company of Google, which also derives most of its revenue from advertising, announced second-quarter earnings showing the slowest revenue growth rate in two years since the second quarter of 2020. Other SNS platforms such as Snap and Twitter also reported second-quarter earnings at 'earnings shock' levels.

CEO Zuckerberg stated that Meta will implement tightened management in preparation for the recession and plans to reduce its workforce next year. Currently, Meta employs 83,553 people, a 32% increase compared to the previous year. He emphasized, "We want to achieve more with fewer resources." Meta announced that total costs would decrease from the initially expected $87 billion to $92 billion to between $85 billion and $88 billion due to workforce reductions and other measures this year.

To counter the strong growth of China's SNS TikTok, Meta is focusing on expanding profitability centered on short video services such as Reels. CEO Zuckerberg said that annual revenue through Reels reached $1 billion and expects Reels' rapid growth to bring more revenue. He emphasized, "We are focusing and expanding our energy and attention on core priorities that open both short-term and long-term opportunities for Meta, its people, and its services."

Following the earnings announcement after market close, Meta's stock price fell nearly 5% in after-hours trading. Meta's stock price has plummeted about 50% this year.

Meanwhile, Meta announced that to fill the vacancy left by Chief Operating Officer (COO) Sheryl Sandberg, who will leave in September, Chief Financial Officer (CFO) David Wehner will move to a new position as Chief Strategy Officer (CSO), and Meta's Vice President of Finance, Susan Li, will take over the CFO role.

This content was produced with the assistance of AI translation services.