Meta falls as sales miss estimates in first-ever quarterly drop

META Platforms, which runs Facebook and Instagram, reported its first ever quarterly sales decline, citing advertisers' shrinking budgets.

Meta revenue slipped to US$28.8 billion in the second quarter, missing the US$28.9 billion average analyst estimate. The company's forecast for the current quarter also fell short. Shares dropped in late trading.

The company's advertising sales efforts are hitting a number of snags. Marketers are spending less due to various economic pressures, leaving Meta and its peers to compete for the smaller budgets. Apple's privacy rules have made ads on Facebook and Instagram less effective.

Meanwhile, in an effort to compete with TikTok, the social networks have been showing more users short-form videos, a format advertisers are still becoming comfortable with. It's not making as much money off of that attention.

Revenue for the current quarter will be US$26 billion and US$28.5 billion, falling short of the US$30.3 billion analyst estimate, the company said on Wednesday (Jul 27) in a statement.

"This outlook reflects a continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader economic uncertainty," according to the statement.

Every day, 2.88 billion people are using one of Meta's social networks, slightly below the 2.91 billion average analyst estimate.

Shares of Menlo Park, California-based Meta fell about 2 per cent in extended trading, recovering from an earlier decline as much as 6.3 per cent. The stock, which closed at US$169.58, has lost half its value this year.

Meta is undergoing a period of immense change, with chief executive officer Mark Zuckerberg trying to rally his employees to work more diligently to retain users, attract young people and prevent a migration to ByteDance's popular TikTok app. Meta put more Reels - its TikTok-inspired short-form videos - in its apps, and started paying creators to post them. The company also made a significant change to the social apps' algorithms, to focus on showing people new kinds of content from those they don't follow.

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That slowdown in advertising spending has hit some competitors more than others. Alphabet's Google saw an increase in ad sales, especially in search ads where marketers pay for direct-response advertising. But Snap and Twitter both struggled to meet sales goals; Twitter's revenue declined.

To combat the uncertainty, Facebook has tried to rein in costs by slowing hiring and focusing on fewer priorities, like developing its short-form video strategy and its algorithmic recommendation engine. The company is still investing in the Metaverse, the immersive virtual-reality world that Zuckerberg thinks we will eventually work, shop and communicate through. But the spending has slowed; some projects, like a watch that could take photos, were shelved.

It's chief operating officer Sheryl Sandberg's last earnings report; she departs the company in September. Chief financial officer David Wehner will become the company's chief strategy officer, and Susan Li, the current vice-president of finance, will be the new CFO. BLOOMBERG