Meta’s business takes a dive as it pivots from old-school social networking

For years, even with concerns over privacy and content moderation lingering in the background, Meta has managed to grow its sales. But that stunning growth appears to be ending.

In a grim second quarter earnings report on Wednesday, the company formerly known as Facebook revealed it had missed on 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 versus the $28.94 billion analysts expected.

Meta also delivered a sobering outlook for its next quarter, anticipating a further softening in the advertising market, from which the company draws almost all its revenues. Meta expects Q3 revenues of between $26 billion and $28.5 billion—a notable drop from analyst expectations of $30.38 billion.

Wednesday’s news underscored what’s become increasingly clear over the last few months: Against the backdrop of a weakened economy that may be headed for a recession, Meta is facing an inflection point in its product and mission.

Investors have been long bracing for Meta’s advertising segment to weaken, due in large part to Apple’s iOS privacy update. In 2021 Apple began requiring apps, including Facebook and Instagram, to ask users permission before tracking their movements. Marketers have also been pulling some ad spend as they prepare for consumers to respond to economic concerns.

“Facebook’s awful quarter and weak outlook further underline the view that advertisers have been cutting back on spending as the overall economy battles with inflation, higher interest rates, and shifting consumer patterns,” said Jesse Cohen, senior analyst at Investing.com in an email.

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

Meta shares, however, dipped only 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 due to the privacy changes and that appears to be bringing down the cost.

“In the second quarter of 2022, ad impressions delivered across our Family of Apps increased by 15% year-over-year and the average price per ad decreased by 14% year-over-year,” the earnings report states.

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

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

“I want to be clear that we are still ultimately a social company,” Zuckerberg said during a call with analysts. Zuckerberg said Meta hopes that suggesting more content from people users don’t know (such as short-form video) will inspire more engagement among friends and family, and, in turn, more video viewing. He said a “flywheel effect” would develop.