san francisco The crisis at the Facebook group Meta is coming to a head. Founder Mark Zuckerberg’s company announced a decline in sales for the past quarter on Wednesday, and profits even halved compared to the same period last year.
The company’s shares fell by more than 19 percent after the market closed and was at its lowest level since 2016 in after-hours trading. Since the beginning of the year, Meta has already lost more than two-thirds of its value on the stock exchange.
Meta’s third-quarter revenue fell four percent year over year to $27.7 billion. At the same time, the company’s costs and expenses increased 19 percent year-over-year to $22.1 billion. Operating income fell 46 percent year over year to $5.66 billion.
Zuckerberg said, “We’re still not where we think we should be, but I believe we’ll return to healthier sales growth next year.” The company will “plan conservatively” for that. His CFO David Wehner was clearer and spoke of “cost discipline”. In other words: Meta wants to save.
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Wehner announced that Meta no longer wants to recruit new staff. “We assume that new hires will slow down drastically in the future and that the number of employees will remain at about the current level next year,” said Wehner. In the past quarter, Meta created 3,700 new jobs and employed around 87,000 people at the end of September.
Meta has been in a difficult environment before, but now things are getting worse, Forrester analyst Mike Proulx said. “Generation Z is leaving Facebook and the use of Reels short videos is thin compared to Tiktok.” Concerns about the economy are now making the situation even worse. “Marketing executives will be cautious in 2023 and slash their advertising budgets and rely on established channels,” Proulx said.
Analyst Brent Thill from the investment bank Jefferies also warned that further setbacks could be imminent in the advertising business. “Ad revenue in the US and Canada fell four percent year-on-year, underscoring that Meta’s key markets are shrinking.”
Three numbers illustrate why North America is so important for Meta. In the past quarter, Meta achieved monthly sales of around $49.13 per user in the USA and Canada. In Europe, that figure was $14.23. And worldwide, the figure was $9.41. In other words: A user in the USA is economically as valuable for the company as three users from Europe put together.
Metaverse causes $9 billion loss
With the ambitions for the metaverse, which are combined in the entity Reality Labs, cause a high loss of 2.76 billion dollars in the past quarter alone. Since the beginning of this year, the unit has posted a loss of $9.4 billion.
Zuckerberg said the bet on the metaverse would cost his company even more money in the years to come. Meta announced, “Reality Labs’ losses will increase significantly in 2023 compared to the previous year.”
In the medium term, the company wants to earn money with applications for business customers. “Each year, 200 million people buy new computers, primarily to work on them,” Zuckerberg said.
In the future, some of this work will take place in the metaverse, with customers using a VR headset to do their work instead of sitting at a computer. “In perspective, this will be a better environment than on the computer,” promised Zuckerberg.
For the final quarter of this year, Meta issued a guidance of $30 billion to $32.5 billion in revenue. Analysts had expected sales of around $32.2 billion.
advertising revenue is weakening
The main source of income for Meta is advertising, which the company places on its products such as Facebook or Instagram. Advertisers are holding back on spending due to concerns about the economy. In addition, the iPhone group Apple has restricted targeted advertising on its devices, which costs companies like Facebook additional income.
Meta isn’t the only company hit by a tougher advertising environment. Last week, Snap’s stock plummeted 30 percent after the company reported weak revenue numbers.
Google’s parent company Alphabet had also disappointed with its quarterly figures presented on Tuesday. The video portal YouTube from Google had reported falling sales figures for the first time. As a result, Alphabet’s share price fell by more than nine percent on Wednesday.
Zuckerberg also made specific statements about how his company should make money in the future. The messenger service WhatsApp should bring profit in the future. In addition, companies should pay for the service. “Paid messaging is an opportunity that we’re starting to use,” Zuckerberg said. SAP rival Salesforce already uses WhatsApp to communicate with customers. And in India, a complete shopping environment has been set up in WhatsApp.
Zuckerberg promised that the short video formats published under the name Reels should also make a profit in the future. “More than 140 billion reels are now played daily on Facebook and Instagram. That’s an increase of 50 percent compared to six months ago,” Zuckerberg said. The advertising turnover is currently around three billion dollars. And it will rise, promised Zuckerberg.
More: Google mother Alphabet fails to meet expectations – YouTube sales are shrinking for the first time.