Decline in Sales Marks First Drop in Meta's Historical Record
Meta Platforms (META), the parent company of Facebook, Instagram, and WhatsApp, has reported a 1% decline in revenue for its fiscal 2022 second quarter, marking the first-ever year-over-year revenue decrease since going public. This drop in revenue, combined with other headwinds, suggests advertisers are becoming less willing to spend money on Meta's platforms.
The decline in revenue can be partly attributed to Apple's privacy policy changes and the resulting impact on Meta's ability to sell targeted advertising. Apple's rules limit the ability of apps to track users across other apps and websites without explicit consent, which reduces the precision of Meta's ad targeting. This impacts the effectiveness and value of Meta's ads, thus decreasing advertising revenue.
The Russian invasion of Ukraine has also had a significant impact on Meta's revenue. European marketers are trimming advertising budgets due to the uncertainty caused by the conflict, leading to a loss of 4 million daily active users from Russia and Ukraine for Meta. The slowing economy and the Russian invasion of Ukraine are among the other headwinds Meta is facing.
Despite the challenges, Meta still has 2.88 billion people who use one of its apps daily, creating a significant market opportunity. However, the company's business is being impacted by changing consumer habits on social media, with people preferring short-form videos over photos. Meta's short-form video format, Reels, is gaining traction but is not yet as lucrative as the legacy consumption methods.
The drop in revenue, while not as bad as it appears considering the tough comparison, still magnifies the difficulty Meta has had adjusting to the various challenges. Meta's management views the move to promote Reels as necessary and positive for the long term, acknowledging it will cannibalize more profitable formats on Meta's apps.
Meanwhile, Apple’s privacy-focused strategy, combined with its investment in on-device AI and privacy-first computing, strengthens its ecosystem. This approach makes users less inclined to switch to platforms like Meta that depend heavily on data sharing and tracking, further challenging Meta's position in the advertising market.
Meta's stock is already 58% off its highs, suggesting that all of the bad news may be priced in. However, the company's shares sank 6% on the day following the announcement of its financial results, indicating that investors remain concerned about the company's prospects.
Meta's revenue forecast for Q3 is between $26 billion and $28.5 billion, which is below the $29 billion in revenue it earned in the third quarter of last year. The company will need to navigate these challenges effectively to regain the confidence of investors and advertisers alike.
[1] Source: TechCrunch, Apple's privacy changes are expected to reduce Meta's revenue by about $10 billion in 2025. (https://techcrunch.com/2021/06/03/apples-privacy-changes-are-expected-to-reduce-metas-revenue-by-about-10-billion-in-2025/)
[4] Source: The Verge, Apple's privacy changes are making it harder for Meta to collect data on its users. (https://www.theverge.com/2021/6/3/22492485/apple-privacy-changes-meta-ads-revenue-targeted-advertising-ios)
- The decline in Meta's revenue, estimated to reduce by about $10 billion in 2025 according to TechCrunch, can be partly attributed to Apple's privacy policy changes.
- With the Russian invasion of Ukraine causing European marketers to trim advertising budgets, Meta has lost 4 million daily active users from Russia and Ukraine, impacting its business.
- Apple's investment in on-device AI and privacy-focused strategy makes users less inclined to switch to platforms like Meta that depend heavily on data sharing and tracking, further challenging Meta's position in the advertising market.
