Meta's revenue in Q2 fell short of expectations! Share price evaporated by nearly half! Is Q3 not optimistic?

It is learned that Meta, the parent company of Facebook, reported a larger-than-expected decline in Q2 revenue, failed to achieve profitability, and issued an unexpectedly weak forecast. Q2 sales fell year-on-year for the second consecutive year. After the earnings report was released, the stock fell 3.8% in extended trading. The following is a summary of Meta's Q2 earnings report:

• Revenue: $28.82 billion, down 1% year-over-year, below Refinitiv estimates of $28.94 billion
• Earnings: $2.46 per share, below Refinitiv expectations of $2.59 per share
• Net income: $6.687 billion, down 36% from $10.394 billion in the same period last year
• Average daily active users: 1.97 billion, higher than StreetAccount's estimate of 1.96 billion
• Monthly active users: 293 million, below StreetAccount's estimate of 2.94 billion
• Average revenue per user (ARPU): $9.82 vs. $9.83 expected, according to StreetAccount
• The number of employees increased by 32% year-on-year to 83,553

Meta's shares have lost about half their value since the start of the year as investors have expressed concerns about the health of the company's core online advertising business, which has been hurt by Apple's new iOS privacy policy last year, which limited Meta's tracking, and a weak economy that has led some companies to cut advertising budgets.

Meta CEO Mark Zuckerberg said on a call with analysts that hiring will slow and there will be layoffs next year as the economy slows: This is a period that requires greater intensity, and I want us to accomplish more with fewer resources.

Q3 quarterly forecast is not optimistic

Meta also released a disappointing Q3 forecast, citing "the continued weak advertising demand environment experienced throughout the second quarter, which we believe is affected by broader macroeconomic uncertainty." According to Refinitiv forecast data, Meta's revenue in the third quarter will be between $26 billion and $28.5 billion, lower than the average analyst expectation of $30.5 billion. This means that this forecast is 2% to 11% lower than the forecast a year ago. Meta expects total spending in 2022 to be between $85 billion and $88 billion, lower than the previous estimate of $87 billion to $92 billion.

Meta's earnings miss mirrors those of rivals Snap and Twitter. All of those companies reported disappointing second-quarter numbers, with executives citing economic and mobile platform challenges that have permeated the online advertising market. Alphabet and Microsoft also reported revenue and profit below analyst forecasts, but both giants' shares still rose.

Facing the TikTok challenge

Another challenge Meta faces is the fierce emergence of the short video app TikTok, which has been cannibalizing the users of other social media apps and occupying the advertising market share, which has made many industry giants sweat. Zuckerberg said in a conference call that TikTok's competing product, Facebook's Instagram Reels, has achieved annual revenue of $1 billion. Although Facebook has invested a lot in Reels, the product's revenue-generating efficiency is not as good as Instagram Stories.

Meta's Reality Labs division, which is responsible for developing the Metaverse and related virtual and augmented reality technologies, will invest heavily in the company. The division brought in $452 million in sales, but recorded a $2.8 billion loss in the second quarter, and Meta expects third-quarter revenue to be lower than in the second quarter.

Earlier this week, Meta raised the price of its Quest 2 VR headset by $100, citing rising production and shipping costs. While Meta is currently the leader in VR headset sales, the market is still small compared to mobile advertising. As the company continues to use Metaverse as part of its corporate rebranding, it is also investing more in sales and marketing. These costs increased 10% year-over-year to $3.6 billion in the second quarter.

Editor ✎Estella/

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