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META Stock Tanks Over 5% as Facebook Parent Reports Revenue Drop and Soaring Losses

UTC by Bhushan Akolkar · 3 min read
META Stock Tanks Over 5% as Facebook Parent Reports Revenue Drop and Soaring Losses
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Meta has given a gloomy picture for the third quarter with Zuckerberg adding that the “economic downturn will have a broad impact on the digital advertising business”.

On Thursday, July 28, Facebook’s parent company Meta Platforms Inc (NASDAQ: META) released its second-quarter earnings for 2022 missing revenue estimates which led to its stock price drop. The company reported its first-ever revenue drop by 1% over the previous year.

During the second quarter, the company reported a revenue of $28.82 billion with earnings-per-share (EPS) at $2.46. The daily active users on the platform stood at 1.97 billion.

META Stock

In a single day on Thursday, another $34 billion evaporated from Meta’s market cap. Since the beginning of 2022, Meta has lost more than 50% of its valuation. As of Thursday’s closing, META was trading at a price of $160.

Furthermore, the META stock came under pressure as company CEO Mark Zuckerberg issued a disappointing third-quarter forecast. He also said that the company will reduce the headcount as it prepares for an economic slowdown.

Meta cited the “continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty”.

The projected revenue by Meta during the third quarter will be around $26 billion to $28.5 billion. This is much lower than the average analyst estimate of $30.5 billion. Thus, the projected decline could be anywhere between 2-11% from a year ago.

Zuckerberg said:

“This is a period that demands more intensity and I expect us to get more done with fewer resources. The economic downturn will have a broad impact on the digital advertising business”.

Meta has already faced a severe advertising revenue hit following Apple’s privacy changes last year. Earlier in February, Meta said that Apple’s FB app transparency feature will result in a $10 billion revenue hit to Meta this year.

Meta Hooks Hopes on Reels

The Facebook parent has been aggressively pushing for short videos by investing in Reels. The company’s Reels business itself brings over $1 billion in annualized revenue. However, analysts are having a mixed bag of reactions to the way Facebook is moving ahead with Reels. In a note to investors, UBS analyst Llyod Walmsley said:

“The Reels monetization ramp seems slow. Given the magnitude of product changes underway, we think investors need to hear an unambiguous and material improvement in time spent to get comfortable.”

On the other hand, analysts from JMP remain optimistic about the future of Reels. In a note on Thursday, the analysts noted that “with Meta making progress with Reels while AI improves recommendations across content and advertising, we expect growth to rebound from current levels while the company is more disciplined in its cost structure”.

For its short-video services, Facebook has been facing tough competition from TikTok. As the economic uncertainty looms over, analysts expect the online ad market to remain subdued.

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