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Meta’s stock drops 17% after its quarterly profit is reduced by half

Meta posted Wednesday its second-quarter revenue decline since it went public. It warned that it is making “significant” changes to reduce costs before 2023 as it faces an economic downturn that has impacted its core online advertising business.

Meta (FB), which posted revenue of $27.7B for the three months ending in September, was down 4% year over year and slightly higher than Wall Street analysts’ expectations. The June quarter saw the first quarterly revenue decline for Facebook’s parent company.

The company reported a net income close to $4.4 billion, less than half of what it earned in the previous year and below analysts’ expectations.

“We are approaching 2023 with an emphasis on prioritization, and efficiency that will help navigate the current environment and emerge an even more powerful company,” Mark Zuckerberg (Metro’s founder, and CEO) said in a statement.

Meta stock dropped almost 17% Wednesday after the results.

Inflation and fears of a recession have caused a decline in online advertising demand. Snap and Google have also experienced a drop in ad revenue. Following the report’s release, Meta CFO David Wehner stated that the average price of an ad on Meta’s platforms dropped 18%.

Meta’s user growth has slowed due to increased competition from TikTok and other rivals. Meta reported that it had 2.96 billion active monthly users of its core Facebook app at the quarter’s end, an increase of 2% over the previous year. This is a decrease from the 6% annual growth rate in the previous quarter. Meta’s app family saw daily active users rise by 4% to 2.93 Billion, a decrease of 11% from the previous year.

Zuckerberg stated that Instagram now has over 2 billion active monthly users, and WhatsApp has more tthan2 a billion active daily users.

These are the challenges it faces in its core business as Meta invests billions of dollars in an ambitious new bet to create a future internet called the metaverse, which is likely to remain years away.

Wehner stated that operating losses from the company’s metaverse ambitions (which are classified under Reality Labs) are expected to “grow substantially year-over-year in 2023.” Reality Labs suffered a loss of nearly $3.7 billion in September and has already cost the company $9.4 billion this year. The September quarter saw a nearly 50% drop in revenue from Reality Labs.

Altimeter Capital, Meta shareholder, wrote last week an open letter requesting that the company reduce its headcount expenses and annual capital expenditures by at minimum 20%. It also asked for a limit of $5 billion in investment in the metaverse.

Wehner reported Wednesday that the company was making “significant changes across the board” to improve its efficiency. Executives stated that the company’s 2023 headcount will be approximately the same as or slightly lower than the September 87,314 report. This is an increase of 28% over the previous year.

Wehner stated that “We are keeping some teams at in headcount, shrinking other and investing headcount growth only where it is most important.” He suggested that the company might shrink its physical office footprint.

On the call, Zuckerberg stated that the company’s three main areas of investment in the next year will be its AI discovery engine, which powers Reels and other recommendations. Ads and business messaging are also key areas. And its vision for the future metaverse. Meta’s latest virtual-reality headset, Meta Quest Pro was unveiled earlier this month and touted its potential to benefit business customers.

Meta anticipates that quarterly revenue will be between $30 billion to $32.5 billion in the last three months of this year. The projection would show a 3.5% decrease in revenue year-over-year compared to the same period last year.

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