Meta’s watershed Q2 spells bad news for its ad business

By Daniel Konstantinovic 

Meta’s watershed Q2 results spell trouble for the social media giant’s future. The company posted its first ever year-over-year revenue decline this quarter, and its business faces existential challenges on every front.

• Second-quarter revenues totaled $28.15 billion, down from $29.07 billion in 2021.
• Net income was $6.68 billion, a 36% decrease from last year.
• Despite forecasts to the contrary, daily and monthly active users across its family of apps both increased by 4%.

Advertising is everything: Advertising lies at the core of Meta’s business, and Q2’s signs about its health aren’t good.

• The devaluation of ads on Meta’s platforms is accelerating thanks to limited tracking abilities and competitors with stronger growth. The average price per ad in Q2 decreased 14% YoY after decreasing 8% in Q1.
• Meta began the year with a warning that Apple’s AppTrackingTransparency policy could cost the company as much as $10 billion in revenues throughout 2022. Its efforts to develop a new tracking solution have been messy and damaged advertiser trust in the platform.
• To top things off, digital ad spending is going through a major downturn that CEO Mark Zuckerberg addressed in the company’s Q3 guidance. “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 macroeconomic uncertainty,” Zuckerberg wrote.

Analyst take: “The year-over-year drop in quarterly revenue signifies just how quickly Meta’s business has deteriorated,” said principal analyst Debra Aho Williamson.

“Prior to these results, we had forecasted that Meta’s worldwide ad revenue would increase 12.4% this year to nearly $130 billion.

Now, it’s unlikely to reach that figure, and I expect that quarterly growth in Q3 and Q4 will almost certainly be slower than our previous expectations. The good news, if we can call it that, is that its competitors in digital advertising are also experiencing a slowdown.”

This article was sourced from Insider Intelligence