Meta Falters on Weaker Q3 Advertising as Businesses Shrink Budgets

The Facebook parent company reported earnings of $4.4 billion, or $1.64 a share, with analysts expecting $1.90 a share

Meta Earnings
Photo illustration by TheWrap

Meta reported third-quarter earnings that missed Wall Street expectations, as the Facebook parent realized a decline in advertising revenue and further losses tied to its virtual reality ambitions.

The social media giant reported earnings of $4.4 billion, or $1.64 a diluted share, on revenue of $27.7 billion for the three months ending Sept. 30. This marks the second-straight revenue decline, and the company is forecasting another drop in the current period.

Analysts were expecting Meta to report third-quarter earnings of $1.90 a share, down from $3.22 a share a year ago. Revenue was projected to reach $27.44 billion in third-quarter revenue, down from $29 billion a year ago. 

The company has poured billions of dollars to remake the company around chief executive Mark Zuckerberg’s image for the metaverse, powered by its Oculus brand’s virtual reality products. He has been pushing to diversify the company’s revenue streams beyond Facebook’s heavy dependence on advertising.

“Our community continues to grow and I’m pleased with the strong engagement we’re seeing driven by progress on our discovery engine and products like Reels,” Zuckerberg said. “While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth. We’re approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company.”

Meta’s forecast for revenue in the fourth quarter was on the low end of analysts’ estimates, reflecting uncertainty for the social-media giant amid an economic slowdown. The company expects sales somewhere between $30 billion and $32.5 billion for the final three months of the year.

The digital advertising space has been tepid at best, with Alphabet on Tuesday announcing its YouTube business line saw revenue decline for the first time since the tech giant began breaking out the unit’s performance. Social media rival Snap Inc. last week offered disappointing guidance for advertising revenue during the current quarter.

The company reported Facebook had 1.984 billion daily active users on average in the quarter, up from 1.968 billion the prior quarter. The slower growth comes at a crucial time as Meta tries to fend off hipper competitors like TikTok.

In slides presented to analysts on Wednesday, Facebook pointed out that advertising revenue in North America weakened quarter-over-quarter as businesses begin to shrink their budgets. The company reported overall ad revenue of $27.2 billion from $28.3 billion in the year-ago period.

The company’s Reality Labs division, which handles its VR headsets, lost more than $9 billion in the first three quarters of the year. On Wednesday, Meta said the third quarter loss hit $285 million. And the losses have begun to rile up investors used to quarter after quarter of profits from the company.

Meta announced plans to cut costs by restructuring some teams and launching a hiring freeze to combat expenses in the face of a growing ad slump. Investors have been vocal that the company needs to push further with layoffs and budget cuts. Brad Gerstner, chief executive of Altimeter Capital, urged the company in an open letter posted on Medium that Zuckerberg must make of a push to slash costs.

In prepared comments, Meta chief financial officer Susan Li said the company is “making significant changes across the board to operate more efficiently. We are holding some teams flat in terms of headcount, shrinking others and investing headcount growth only in our highest priorities. As a result, we expect headcount at the end of 2023 will be approximately in-line with third quarter 2022 levels.”

Shares of the company plunged in after-hours trading, plunging more than 14% after the stock closed down nearly 6% at $129.82.