First Time Ever, Facebook Reports Decline In Profits: TikTok Is The Main Reason?

First Time Ever, Facebook Reports Decline In Profits: TikTok Is The Main Reason?
First Time Ever, Facebook Reports Decline In Profits: TikTok Is The Main Reason?

Meta reported its first revenue decline in history owing to reduced ad spending as the economy falters and competition from rival TikTok intensifies.


Competitors also affected

TikTok has eroded its popularity, while more firms are competing for ad spending.

There has been a broader decline in the digital advertising market that is affecting rivals such as Alphabet and Snap.

The former reported its slowest revenue growth since the pandemic hit in 2020.

Broader decline in ad market

Finance chief David Wehner said in a statement that the figures posted by Meta shows that the advertising demand environment is weak, which they believe to be driven by broader macroeconomic uncertainty.

Meta also faces some unique challenges, including the departure of its chief operating officer and second in command Sheryl Sandberg who is largely behind building the company’s massive advertising business.

Another factor behind the decline are questions about Meta’s leadership including Sandberg’s exit and negative image about the company as a whole.

The figures

Meta made profits of $6.69 billion, or $2.46 per share, in the April-June period.

This is a decline of 36% from $10.39 billion, or $3.61 per share, in the same period a year ago.

Revenue also saw a downturn of 1% at $28.82 billion, from $29.08 billion a year earlier.

Unlikely to meet expectations

Insider Intelligence analyst Debra Aho Williamson in an email said that the year-over-year drop in quarterly revenue indicates how quickly Meta’s business has deteriorated.

Early forecast was an ad revenue growth of 12.4% this year, to nearly $130 billion.

Now it looks unlikely that it will reach the figure.

Analysts fear that Meta’s growth may have peaked.

Betting big on Metaverse

The company is in the middle of a corporate transformation that will take years to complete.

It wants to make the leap from social media to the “metaverse” which it believes to be its best prospect for growth but is also a risky bet that’s still in early stages.

It pledged its commitment when it renamed itself Meta last fall.

The concept can be described as sort of the internet brought to life, or at least rendered in 3D.

Will it work?

CEO Mark Zuckerberg described it as a “virtual environment” in which one can immerse themselves in instead of just staring at a screen.

In a show of how seriously it is taking this, it is investing billions that will likely take years to pay off.

Raj Shah, a managing partner at digital consultancy Publicis Sapient predicts that Meta’s decline will continue until it can monetize the metaverse, and begin another Meta-reverse.

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