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Meta’s business falls apart as it turns away from social networks

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For years, even with privacy and content moderation concerns in the background, Meta has managed to grow its sales. But that astonishing growth seems to be coming to an end.

in a grim state earnings report second quarter on Wednesday, the company formerly known as Facebook revealed it had missed both the top and bottom lines for the quarter. It reported earnings per share of $2.46; analysts had expected $2.59. At the same time, it posted revenue of $28.82 billion, compared to the $28.94 billion analysts had expected.

Meta also provided sobering outlook for the next quarter, anticipating a further weakening of the advertising market, from which the company derives nearly all of its revenue. Meta expects third-quarter revenue of between $26 billion and $28.5 billion — a notable drop from analysts’ expectations of $30.38 billion.

Wednesday’s news underlined what has become increasingly clear in recent months: Against the backdrop of a weakened economy that could be heading for a recession, Meta is at a turning point in its product and mission.

Investors have long been bracing for a weakening of Meta’s ad segment, largely due to Apple’s iOS privacy update. In 2021, Apple began requiring apps, including Facebook and Instagram, to ask users for permission before tracking their movements. Marketers have also pulled back some ad spend as they prepare for consumers to respond to economic concerns.

“Facebook’s terrible quarter and weak outlook further underscore the image that advertisers have cut spending as the economy as a whole grapples with inflation, higher interest rates and changing consumer patterns,” Jesse Cohen, senior analyst at Investing.com, said in an email. .

Notably, Meta posted the first-ever year-over-year sales decline since its market debut in 2012. Sales were down 1% from the same quarter in 2021.

Meta-shares, however, fell just a few percentage points in after-hours trading.

Facebook and Instagram ads have historically been popular with marketers due to Meta’s ability to target users. But the company’s ad unit has become less effective as a result of privacy changes and that seems to be driving down costs.

“In the second quarter of 2022, ad impressions delivered across our family of apps grew 15% year-over-year and the average price per ad decreased 14% year-over-year,” the revenue report states.

It’s not just Meta who has struggled this season. Companies that rely on ad spend, such as Snap and Twitter, have reported weak ad dollars, citing a decline in marketer spending due to economic uncertainty and Apple’s changes.

The poor earnings results come after Meta’s announcement that it plans to insert more TikTok-esque short videos into users’ feeds. Meta CEO Mark Zuckerberg went on the defensive very early in the conversation with analysts:

“I want to make it clear that we are a social company after all,” Zuckerberg said during an interview with analysts. Zuckerberg said Meta hopes suggesting more content from people users don’t know (like short videos) will lead to more engagement with friends and family and, in turn, more video viewing. He said there would be a “flywheel effect”.

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