Meta Q2 Earnings Report: Shocking Results & Declining Profits

Right after the release of Meta's Q2 financials, it was reported that the company had an unexpectedly rocky quarter with their own earnings. The result was a revenue decrease by 1% and some severe lower-than-expected figures. The overall income for parent company, Meta, fell 36% to $6.7 billion. The Reality Labs division responsible for building Mark Zuckerberg's metaverse dreams lost $2.8 billion in the quarter.

Shareholders were clearly shaken by this news, as the result share price fell 3.8%

Key financial indicators of Meta's earnings report:

• Earnings per share (EPS): $2.46 vs. $2.59 expected
• Revenue: $28.82 billion vs. $28.94 billion expected
• Average Revenue per User (ARPU): $9.82 vs. $9.83 expected

Facebook's (Meta) results followed a trend ✨ started by Snap and Twitter, who both had disappointing second-quarter numbers. Snap and Twitter blamed the mobile platform challenges permeating the online ad market for their poor performance. By last week, the mood had already soured so much that Alphabet and Microsoft's shares rose this week despite those companies missing analysts' expectations.

Meta Fell Short of Revenue Expectations

Meta reported second quarter 2022 declines in all key financial metrics, including Daily Active Users (DAU) and Monthly Active Users (MAU). Based on this, next quarter's numbers may also be disappointing.

Meta also produced a disappointing third-quarter forecast, quoting "a continuation of the weak advertising demand environment we experienced throughout the second quarter, which is being driven by broader macroeconomic uncertainty".

"This is a period that demands more intensity and I expect us to get more done with fewer resources," Zuckerberg said.

With concerns about the health of the company's core online advertising business, shares of Meta have lost half their value since the beginning of this year. This is due to Apple's iOS privacy update last year, which limited Meta's ability to track users; as well as a weakening economy, which led some companies to slash their ad budgets.

Facebook needs to invest in other video products to remain competitive with TikTok, a trending app that has grown in recent years. One of their newer products, Instagram Reels, is building $1 million in annualized revenue, but it is not as popular as other videos already on the Facebook site.

The earnings call was the last for Sheryl Sandberg, Meta's operating chief, who announced in June that she's leaving the company after 14 years. Given the state of the business, she didn't have a lot of good news to share.

What to Expect from Meta Shareholders

Investors reacted negatively to the news of Meta's earnings decline, with shares down 3.8%.

According to Meta, its third-quarter revenue ranged from $26 to $28.5 billion, which is below Wall Street's forecast of $30.7 billion. In the best-case scenario, they will be down 10% from the last year's earnings.

While the first-ever drop in revenue growth was expected on Wall Street going into Wednesday's earnings report, it solidifies how challenged Meta's business has quickly become on all fronts. Apple's "Ask app not to track" prompt on iPhones has made its ads much less effective, costing Meta $10 billion in ad revenue last year alone. And now a rapidly slowing economy has caused advertisers to pull back on their spending.

Mark Zuckerberg's team is trying to increase ad sales and improve the functionality of its entertainment products. However, according to the billionaire, this takes time. Since most of the innovations are based on artificial intelligence and other IT technologies.

Based on projections for the next fiscal quarter, the company is unlikely to improve significantly in the near future. Keep this in mind when forming your trading strategy.

We will be sure to follow all news and updates about Meta to keep you informed.

Summary

• Meta missed on the top and bottom lines and gave a troubling forecast for the third quarter.
• The shares have lost about half their value this year as marketers pull back on ad spending.
• The company said its guidance reflects a "continuation of the weak advertising demand environment."

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