On July 28, Facebook parent Meta released its financial results for the second quarter of 2022, which ended June 30. The company reported second-quarter revenue of $28.822 billion, down 1% from $29.077 billion a year earlier, marking its first quarterly year-over-year revenue decline. Net income fell 36% to $6.687 billion from $10.394 billion a year earlier and has declined for three straight quarters.
Du Hongchao, independent director of Jiannan Technology and founder of Yuan News Agency, told the reporter of Economic Observer that Meta's fundamentals (user data and traffic data, revenue scale and cash inventory) have not changed fundamentally, and its main source of revenue is advertising, which has declined due to the influence of the real economy and the competition of short video traffic.
Meta has been pushing Metaverse hard in recent years, but the metaverse business also declined in the second quarter, prompting founder and CEO Mark Zuckerberg to say on a conference call that the company is more focused on "long-term metaverse growth." Du Hongchao told reporters that the meta-universe is still in the period of operation, "the meta-universe can become a large probability of the next generation of Internet traffic password, the key indicator is the XR terminal user number growth curve."
Weak advertising demand
Meta's main source of revenue is the Family of Apps, which includes Facebook, Instagram, Messenger, WhatsApp and other services. At the end of the second quarter, Meta had 3.65 billion monthly active users, of which Facebook had 2.935 billion. The number of daily active users grew in the second quarter, and the traffic numbers are still significant. But revenue fell, down 1.4% from a year earlier to $28.37 billion.
Meta, which makes most of its money from advertising, posted revenue of $28.15 billion, down 1.5% year over year and missing market expectations of $28.53 billion. Meta says this is because of Apple's privacy policy. Last April, Apple tweaked its privacy policy and introduced ATT (App Tracking Transparency), a feature that prevents apps like Facebook from tracking user activity on the web and within apps, hampering Meta's ability to provide advertisers with an accurate view of user behavior. Meta's average price per AD fell 14% year over year in the second quarter, according to the results.
Based on Meta's guidance for the third quarter, it expects total revenue of $26 billion to $28.5 billion. Dave Wehner, chief financial officer, said the forecast showed continued weakness in advertising demand, which was a result of macroeconomic uncertainty.
In response to slowing growth in the core advertising business, Zuckerberg said he would increase investment in metaverse, short video app Reels and other related businesses to seek new growth.
The Metaverse continues to invest
Meta Metaverse, the most closely watched business, also delivered a disappointing report card this quarter. Reality Labs recorded revenue of $450 million, its worst quarterly performance in the past year. In the first two quarters, Reality Labs generated revenue of $877 million and $695 million, respectively. In other words, this quarter's Metaverse business is flat and revenue is down significantly.
Meta has been losing money since it launched the Metaverse in August 2020. In the first financial results showing the transformed metaverse disclosed to investors, its metaverse business lost more than $10 billion. It also lost $2.8 billion in the second quarter of this year.
The Reality Labs division was founded in 2018 to study VR/AR technologies and products, and its production hardware product Quest2 is one of the best selling VR devices currently on the market, occupying 78% of the AR/VR market in 2021, ranking first.
On July 26, Meta announced that starting in August, the price of the 128GB and 256GB versions of Quest2 will increase by $100 to $399.99 and $499.99, respectively. In response, Meta explained, "The manufacturing and shipping costs of our products have been rising. By adjusting the price of Quest 2, we can continue to increase our investment in groundbreaking research and new product development, taking the VR industry to new heights."
In retweeting news of Quest's price hike, Sky Wind analyst Ming Kuo said Quest2's more affordable price is a key competitive advantage over its competitors With Meta's VR ecosystem still not strong enough to attract users, Quest's price hike could hurt demand and shipments along its hardware supply chain.
In the face of continued losses at the Metaverse division, Zuckerberg said on the conference call that he would continue to treat Metaverse as a key priority, continue to invest and focus on its "long-term Metaverse growth" rather than maximizing short-term revenue from monetization. Meta said it would invest about $10 billion this year to develop metaverse technologies, about five times what it spent on Oculus VR in 2014 and 10 times what it spent on Instagram in 2012.
Hiring slowed to curb costs
Zuckerberg said on July 1 that Meta was facing the worst recession in its recent history as growth in user numbers and AD revenue slowed, so the company lowered its hiring target for 2022 to about 6,000-7,000 new engineers from an initial plan of about 10,000.
On the earnings call, Zuckerberg also addressed the layoffs, saying that the economy is in a downturn, which will hurt the company's advertising revenue, so it has to slow down hiring, downsize the team and put the money to work elsewhere. For next year, he also plans to reduce staff growth, with many teams downsizing and shifting their focus to other areas.
At the same time, Meta has also reduced its hiring and overall spending this year in response to a more challenging operating environment, while continuing to prioritize resources for the company's major projects.