On July 27 local time, Facebook parent Meta ($169.58, market cap $458.938 billion) announced its second quarter 2022 financial results, which ended June 30. Meta reported revenue of about $28.8 billion in the second quarter, down 1% year over year, marking the company's first ever quarterly revenue decline. Net income was about $6.7 billion, down 36% from a year earlier; Diluted earnings per share were $2.46, down 32% from a year earlier.
Meta shares, which closed up nearly 6.6 per cent, fell 4.53 per cent in after-hours trading after both second-quarter revenue and net income fell more than analysts had expected.
A decline in online advertising revenue, Meta's core business, was one of the main reasons for the decline. Social media platforms across the board are facing pressure to sell online ads as advertisers cut back on spending due to inflation and other factors.
According to the company's latest results, advertising revenue fell 1.5% year over year to $28.15 billion in the second quarter, the lowest since the first quarter of last year and below analysts' expectations of $28.53 billion.
At the same time, Meta is burdened by founder and CEO Mark Zuckerberg's vision of a "meta-universe." Reality Labs, a metaverse business that includes hardware, software and content related to AR and VR, reported revenue of $452 million, the lowest in the last four quarters since the second quarter of last year, up 48.2% year over year, and a loss of $2.8 billion in the quarter. It lost $2.96 billion in the first quarter.
The good news is that Facebook's key user metric, the number of daily active users, grew in the second quarter. Facebook's daily active users came in at 1.97 billion in the quarter, above market expectations of 1.96 billion and marking the second consecutive quarter of sequential growth and a 3% year-over-year increase. In the fourth quarter of 2021, Facebook reported a decline in users for the first time in its history, causing concern in the market.
The current economic weakness has Meta cautious about its future performance outlook. Meta expects overall revenue for the third quarter to be $26 billion to $28.5 billion, representing a decline of 0.79 percent to 8 percent year over year. Meta also expects third-quarter "reality lab" revenue to be lower than the second quarter.
Meta Chief Financial Officer David Wehner said the weak advertising demand trend the company experienced throughout the second quarter would continue, driven by broader macroeconomic uncertainty.
Along with its earnings announcement, Meta announced a shake-up of its top management. Effective Nov. 1, Wehner, currently CFO, will serve as Meta's first chief strategy officer, overseeing the company's strategy and corporate development. Susan Li, currently Vice president of Finance, will be promoted to Chief Financial Officer.
Meta's total headcount at the end of the second quarter was 83,553, higher than market expectations of 80,188 and an increase of more than 5,700 from the second quarter, the results showed. However, according to the latest news, the number of new employees in the third quarter may fall significantly.
Given the more challenging operating environment, Meta has reduced the size of its hiring and overall expense growth plans for this year, Wehner said. For the full year 2022, Meta expects total expenses to be $85 billion to $88 billion, down from the company's previous forecast of $87 billion to $92 billion, Wehner said.
This quarter, Meta has announced that it will slow its hiring pace. In a regular question-and-answer session with employees in late June,Meta founder and CEO Mark Zuckerberg made it clear that the company would slow down its hiring pace due to economic and business pressures, and cut the number of engineers it will hire in 2022 from 10,000 to 6,000 to 7,000.