Meta Reports First-Ever Drop in Ad Revenue

Meta’s latest earnings report reveals the company’s first ever decline in year-over-year advertising revenue, signaling a downward trend that is likely to continue.

Meta’s second quarter 2022 earnings report marks the end of a decade of consecutive advertising revenue growth.

We’ll explain why this matters, what it means for marketers, and what’s next for Meta in light of these numbers.

Meta’s revenue decline is blamed on the economic slowdown

Several factors are contributing to Facebook’s unprecedented revenue decline.

In a conference call with investors, Meta CEO Mark Zuckerberg said his company missed its targets due to an economic downturn that is affecting the entire digital advertising market:

“…we appear to have entered an economic downturn which will have a significant impact on the digital advertising industry. It is always difficult to predict the depth or duration of these cycles, but I would say the situation looks worse than it wasn’t a quarter ago.

In addition to a weak economy, Meta has to contend with Apple’s privacy settings.

The economy is only accelerating a decline in revenue growth that began when Apple allowed users to tell apps not to track their data.

As a result, people see less relevant ads in their feeds because Meta doesn’t have access to as much data about them.

This adds to a grim picture for Meta’s advertising business, and Zuckerberg is warning investors to expect the revenue decline to continue into the next quarter.

It’s not all bad though. In the following section, we will review other highlights from the report.

What are the numbers?

Meta’s advertising revenue fell 1% in the second quarter of 2022 compared to the year-ago period.

Meta earned $28.82 billion from ads, although it expected to earn $28.94 billion.

Zuckerberg’s Metaverse project, known as the Reality Labs division, is a huge expense. Work on the project cost Meta $2.8 billion in the second quarter.

A positive trend to note is that daily active users of Facebook increased by 3%. There are now 1.97 billion people online every day.

Daily active users on Facebook, Instagram, Messenger and WhatsApp increased by 4% compared to last year.

There’s no indication users are losing interest in Meta’s suite of apps, which means there’s an opportunity to increase revenue if the company can find a way to make ads more effective.

This brings us to our next section, where we’ll look at what this means for businesses and marketers using Meta’s applications on a daily basis.

What does all this mean?

Meta applications are not losing popularity in any way.

The audience is there. The problem is that advertisers have smaller budgets and they’re not getting the same value from ads as before.

To address the problem of declining advertising revenue, Meta plans to offer new types of monetization. Specifically, the company is working on ways to make money with Reels.

In response to the Q2 earnings report, Zuckerberg underlines his commitment to building Facebook and Instagram around Reels.

The Reels Viewer is one of the only sections of Facebook and Instagram that is not fully monetized. It is therefore not a revenue generator at the moment, but it could potentially become one in the future.

Zuckerberg says in the earnings call:

“In the short term, the faster Reels grows, the more revenue that shifts from high-monetization products increases.”

Meta’s goal is to be more like TikTok. As Meta focuses more on reels, it will inevitably lead to other types of content being streamed less.

For businesses and marketers, it’s worth thinking about how to fit a short video into the mix to maintain visibility on Meta’s apps.

To that end, if you’re not getting the results you’re looking for with Facebook Ads, Reels could be a viable solution to expand your reach.


Sources:investor.fb.com, CNBC

Featured Image: Rokas Tenys/Shutterstock

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