Explained: Why Facebook parent Meta saw first-ever fall in quarterly revenue, and what’s next

Meta CEO Mark Zuckerberg said that the current economic downturn has had an impact on digital ad sales, Meta’s core business. “We seem to have entered an economic downturn that will have a broad impact on the digital advertising business,” Zuckerberg said in an earnings call. “The situation seems worse than it did a quarter ago.”

In her final earnings call, Meta’s outgoing COO Sheryl Sandberg said, “Foreign exchange trends had a significant impact in Q2, in particular the depreciation of the Euro relative to the dollar”.

The company will reduce its spending and slow its pace of hiring to weather the storm. “This is a period that demands more intensity, and I expect us to get more done with fewer resources,” Zuckerberg said.

What’s in store for Meta’s core offerings going forward?

1. Facebook

In what was a silver lining in the company’s quarterly report, people are still continuing to use Facebook. Meta said that the number of people who log in to the social media juggernaut everyday was up 3% to 1.97 billion. This would come as a shot in the arm for the company which had posted its first ever decline in user growth since being founded in the fourth quarter of 2021. While Facebook did lose monthly active users in the quarter, it primarily came from the suspension of its services in Russia.

2. Instagram

It appears that the future of content on Instagram – which started off as a photo-sharing platform – will largely be dictated by videos. Hours before Meta announced its quarterly results, Instagram head Adam Mosseri said that user trends increasingly indicate a shift towards videos. The company has also doubled down on its short video offering ‘Reels’ within the Instagram app to counter the immense popularity of TikTok.

“About 15% of content in a person’s Facebook feed and a little more than that of their Instagram feed is recommended by our AI from people, groups or accounts that you don’t follow,” Zuckerberg said. “And we expect these numbers to more than double by the end of next year.” He also added that users have spent 30% more time viewing Reels than last quarter.

3. Metaverse

Zuckerberg has been spending a significant amount of capital in building up the so called metaverse, a combination of virtual and augmented realities. However, on Wednesday, the US Federal Trade Commission sued the company over buying a virtual reality firm called Within, striking a blow to Zuckerberg’s ambitions.

What signal does Meta’s declining revenue offer?

There seems to be a divergence between ad sales on social media platforms and search engines. In line with Meta, Twitter and Snapchat had earlier also cautioned of an ad market slowdown in the coming quarters. However, Google parent Alphabet recently reported a rise in quarterly revenue with ad sales on Google search topping investor expectations.

It is worth noting that social media companies were the most impacted by changes to Apple’s handling of how apps could track users’ activities, making it difficult for them to target ads to smartphone users based on their online activity.