Meta posts first-ever revenue drop as inflation throttles ad sales

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By Katie Paul and Nivedita Balu

(Reuters) -Meta Platforms Inc issued a gloomy forecast after recording its first ever quarterly drop in revenue on Wednesday, with recession fears and competitive pressures weighing on its digital ads sales.

Shares of the Menlo Park, California-based company were down about 4.6% in extended trading.

The company said it expects third-quarter revenue to fall to $26 billion and $28.5 billion, which would make it a second year-over-year drop in a row. Analysts were expecting $30.52 billion, according to IBES data from Refinitiv.

Total revenue, which consists almost entirely of ad sales, fell 1% to $28.8 billion in the second quarter ended June 30, from $29.1 billion last year. The figure slightly missed Wall Street's projections of $28.9 billion, according to Refinitiv.

The company, which operates the world's largest social media platform, reported mixed results for user growth.

Monthly active users on flagship social network Facebook came in slightly under analyst expectations at 2.93 billion in the second quarter, an increase of 1% year over year, while daily active users handily beat estimates at 1.97 billion.

Like many global companies, Meta is facing some revenue pressure from the strong dollar, as sales in foreign currencies amount to less in dollar terms. Meta said it expected a 6% revenue growth headwind in the third quarter, based on current exchange rates.

Still, the Meta results also suggest that fortunes in online ads sales may be diverging between search and social media players, with the latter impacted more severely as ad buyers reel in spending.

Alphabet Inc, the world's largest digital ad platform, reported a rise in quarterly revenue on Tuesday, with sales from its biggest moneymaker - Google search - topping investor expectations.

Snap Inc and Twitter both missed sales expectations last week and warned of an ad market slowdown in coming quarters, sparking a broad sell-off across the sector.

On top of economic pressures, Meta's core business is also experiencing unique strain as it competes with short video app TikTok for users' time and adjusts its ads business to privacy controls rolled out by Apple Inc last year.

The company is simultaneously carrying out several expensive overhauls as a result, revamping its core apps and boosting its ad targeting with AI, while also investing heavily in a longer-term bet on "metaverse" hardware and software.

Meta executives told investors they were making progress in replacing ad dollars lost as a result of the Apple changes but said it was being offset by the economic slowdown.