SAN FRANCISCO — For years, Facebook’s sales grew and grew steadily, defying the laws of gravity even as privacy and misinformation scandals plagued the company.
On Wednesday, Meta, the company formerly known as Facebook, reported a 1 percent year-over-year decline in quarterly revenue. It was the first time the social media giant’s revenue has declined since its IPO a decade ago, as it faces increased regulatory scrutiny and a turbulent economy as it tries to establish a new frontier of digital communications.
Meta revenue was $28.82 billion in the second quarter, up from $29.07 billion a year earlier. Profit was $6.69 billion, down 36 percent year-on-year. Wall Street analysts had forecast earnings of $7.04 billion on sales of $28.9 billion, according to FactSet.
The results compounded a difficult day for Meta, which was also sued by the Federal Trade Commission on Wednesday over a deal to buy a virtual reality company called Within. The lawsuit hit squarely on the ambitions of Mark Zuckerberg, Meta’s founder and CEO, who has spent billions of dollars creating an immersive world of social interaction in the “Metaverse,” which will be a combination of virtual and augmented realities through Commerce – and online relationships tied.
Meta’s revenue decline was particularly sharp, as quarterly revenue growth was 28 percent as recently as 2019. The company attributed its recent lackluster financial results to weaker demand for digital advertising and general economic uncertainty.
Read more on Facebook and Meta
“We appear to have entered an economic downturn that will have far-reaching implications for the digital advertising business,” Zuckerberg said on a conference call. “The situation seems worse than it was three months ago.”
Google, Twitter and Snap, which rely on online advertising, also said this month they are seeing reduced demand for advertising due to the slowing global economy. Some of the companies cited the impact of the war in Ukraine and its destabilizing effect on the European advertising market, and the strength of the US dollar, which has hurt the companies’ global sales.
This pain probably won’t end soon. For the current quarter, Meta expects “a continuation of the weak advertising demand environment”. E-commerce ads eased as the “pandemic peak” passed and more people ventured outside, the company said, adding that difficult times like these are historically “cyclical.”
Mr. Zuckerberg, who has curbed spending and slashed perks at his company, said he expects to “do more with fewer resources.” However, he noted that he plans to continue investing in key areas that would prepare Meta for the next phase of growth.
Economic turmoil aside, Meta faces challenges of its own. Last year, Apple made privacy-related changes that prevented Meta from measuring and serving its advertising on Apple-made mobile devices. (Meta makes most of its advertising revenue from smartphones.)
It also stares down the barrel of one of its toughest competitors in TikTok, the Chinese video app that has captured the attention of more than a billion people in just a few short years. Mr. Zuckerberg has begun revamping his company’s products to mimic TikTok’s offerings, including sweeping changes to Instagram and Facebook.
At the same time, Mr. Zuckerberg spent a lot of money on his vision of the metaverse. He has told investors, technologists and others that efforts may take years to bear fruit and that the endeavor will be costly. Some investors are skeptical that the investments will pay off in the long run.
Still, there were bright spots in Meta’s earnings report. The company said its “daily active people,” its term used to describe users across its family of apps — which includes Facebook, Instagram and WhatsApp — rose to 2.88 billion, a 4 percent increase from the corresponds to the previous year. That beat analysts’ expectations that the company was losing visitors. The Facebook app also saw user growth in the United States, an area some believed was saturated.
Mr. Zuckerberg said he was encouraged by other areas of Meta’s business that are driving growth and engagement, such as its video product Reels, a feature within Instagram that is similar to TikTok’s video offering. Investments in artificial intelligence recommendation algorithms have also resulted in more people using the service and for longer periods of time, the company said.
His goal is to eventually make more money from reels, which isn’t as lucrative for Instagram as the app’s other advertising formats. Part of the challenge was enforcing a “cannibalization effect” where more people use the new Reels product and steer away from viewing more valuable ads that appear between the photo and story portions of the app. Mr. Zuckerberg said he believes it’s only a matter of time before Meta figures out a better way to monetize reels.
To weather a difficult period, the company plans to slow hiring and cut costs in the second half of the year. On Tuesday, the hardware division of Meta’s Reality Labs, which makes virtual reality headsets and other products, announced that it would increase the price of its marquee VR headset, the Quest 2, by $100.
Meta also said David Wehner, the company’s chief financial officer, would become chief strategy officer, a new position that will also oversee company development. Susan Li, Vice President of Finance at Meta, will become Chief Financial Officer.
In a post on his Facebook page, Mr. Zuckerberg said changing Mr. Wehner’s role would help with challenges, partnerships and internal organization. “These areas will benefit from a more disciplined strategy process,” he said.
Meta’s chief operating officer, Sheryl Sandberg, also appeared on Wednesday’s earnings call, the last of her 14-year tenure. Ms. Sandberg, who plans to leave the company in the fall, struck an upbeat tone while acknowledging the challenges Meta faces.
“There is no doubt that we are going through a period of transition, and it is at a time of global economic uncertainty,” she said. “Meta is a company that has demonstrated exceptional resilience. And we have proven again and again that our products scale globally.”