Facebook and Instagram’s parent company Meta recorded its first revenue drop in history after warning that Apple’s privacy change would cost it $10 billion in sales this year.
Meta has also been battling growing competition from rival TikTok, while its CEO has warned that staff numbers will be reduced.
Apple’s move, which allowed people to “ask the app not to track” with a single click, appears to have torpedoed Facebook’s advertising model, which combined data from different companies to personalize ads.
One Twitter user said it was “hilarious” that a “seemingly innocuous IOS update – allowing users to one-click enable or disable data collection/tracking/analysis by apps – alone torpedoed $10 billion and counted in Facebook’s ad revenue”.
Meta CEO Mark Zuckerberg has revealed job cuts will be made at the social media giant.
“A lot of teams are going to shrink so we can shift the energy to other areas within the business,” he said on an earnings call on Wednesday.
In May, the company implemented a partial hiring freeze, while recently Meta’s human resources chief, Lori Goler, suggested laying off employees who did not meet expectations as the company began to operate with “increased intensity,” according to a memo.
In June, an internal memo from Meta’s engineering chief told his managers to identify and report underperforming employees so they could force those employees out, the report reported. the wall street journal.
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Meanwhile, the company posted profits of $6.6 billion (A$9.6 billion), which fell 36% from the same period last year when it earned 10.3 billion dollars (17.7 billion Australian dollars).
In terms of revenue, it earned $28.8 billion (A$41.2 billion), which was down 1% from a year earlier when it was $29 billion (A$41. billion Australian dollars).
“The year-over-year decline in quarterly revenue speaks to how quickly Meta’s business has deteriorated,” Insider Intelligence analyst Debra Aho Williamson reported. Sydney Morning Herald.
“Prior to these results, we had forecast Meta’s global advertising revenue to grow 12.4% this year, to almost $130 billion (A$186 billion). Now it’s unlikely to reach this digit.
Besides its TikTok issue, Meta has also suffered from Apple’s privacy changes that allow users to prevent Facebook and Instagram from being tracked, “questions about Meta’s leadership,” and negative sentiment about the company so that whistleblowers have come forward, according to Raj Shah, an associate director at US digital consultancy Publicis Sapient.
When news of chief operating officer Sheryl Sandberg leaving the company, after 14 years working alongside Mr Zuckerberg, broke in June, it couldn’t have come at a ‘worse time’ for Meta, analysts said.
Ms Sandberg, who has a net worth of $1.6 billion (A$2.2 billion), was the mastermind of the company’s huge advertising business.
But his departure also comes at a time when Meta is attempting a risky move by investing billions to launch a suite of virtual reality Metaverse products, which analysts say would take years to turn a profit.
“Expect Meta’s decline to continue until Meta can monetize the metaverse and begin another meta-inverse,” Shah added.
Meta’s chief financial officer, David Wehner, blamed the company’s results on continued weak advertising demand, which he said was driven by broader macroeconomic uncertainty.
However, the company defied expert predictions when it revealed that Facebook’s daily user base had grown to 1.97 billion people from 1.96 billion just three months ago.
TikTok is a huge concern as it reaches a younger demographic.
Sabri Suby, founder of Australian digital marketing agency King Kong, said TikTok was one of the few major threats to Facebook since its launch 18 years ago.
“Facebook’s usual reaction would be to just buy out the offending platform, but with TikTok that’s not possible. But this isn’t Zuckerberg’s first rodeo, he’s weathered worse,” he said. .
“Facebook’s continued attempts to keep its audience younger has certainly been a challenge, and they’re afraid of disappearing with their older demographics, but they still have a very valuable place in the market.
“Not only is TikTok’s algorithm more advanced, but the potential to compete with Facebook’s advertising platform is the elephant in the room. The costs of serving Facebook ads are skyrocketing and the quality is declining.
“The platform is saturated and complicated by censorship and millions of companies competing for the same space, but the numbers released today are not necessarily a sign of the platform’s near and imminent demise. .”
Mr Zuckerberg said in April that the company would change the way users view content in a bid to boost engagement, but the changes sparked a backlash among users.
The company said it would recommend content to Facebook and Instagram users through the social network rather than just directly from the accounts they follow, mimicking one of TikTok’s signature characteristics, as well as showing more videos.
The changes sparked a petition and an image that reads “Make Instagram Instagram Again” and “stop trying to be tiktok” circulating on the platform, which was shared by Kim Kardashian and Kylie Jenner garnering millions of likes .
Meta’s Instagram manager, Adam Mosseri, said many features are still evolving.
“I have to be honest – I believe Instagram is going to become more and more video over time,” Mosseri said in a video posted to Twitter.
Mr Suby said Facebook and Instagram would continue to emulate their rivals with more video content and updates.
“It remains to be seen whether or not they will survive this threat, but there are definitely things, like their customer service, that they urgently need to address,” he said.
“Facebook falls flat on customer support compared to TikTok and Google where you can speak directly with a representative for support – it’s almost non-existent for Facebook and something their lion’s share ethics” like -it or lump it” has satisfied to date – that will no longer suffice.
Meta revealed that it also expects its total spending for 2022 to be between $85 billion ($121 billion) and $88 billion ($126 billion), down from the previous outlook. of the company from $87 billion ($124 billion) to $92 billion. (131 billion Australian dollars).
A reduction in the hiring plan and overall spending growth was the reason for the drop, the company said.
Shares of Meta took a hit as the company’s performance was announced, falling 3.3% to US$163 (A$233) after hours trading.