Meta CEO Mark Zuckerberg had to do something Wednesday night he's never had to do before: Announce a drop in sales to shareholders. For the first time in its history, the Facebook group is no longer growing continuously.
Revenue in the second quarter fell 1 percent to $28.8 billion. The slump in profits to 6.7 billion dollars, 36 percent below the previous year's value, weighs significantly more heavily. Meta has thus arrived in the declining online advertising market.
"We appear to have entered an economic downturn that will have far-reaching implications for the digital advertising business," Zuckerberg said when speaking to analysts about the numbers. He warned of what awaits the company and its shareholders in the coming quarters: "It's always difficult to predict how deep or how long these cycles will be, but I would say that the situation seems to be worse than before a quarter of a year."
As the figures show, Meta is facing a difficult time. Founder Zuckerberg bets billions on the future of the company in the metaverse - but at the same time advertising sales collapse.
Meta is particularly affected by the economic uncertainties of the Ukraine invasion in Europe and the consequences of inflation in the USA, emphasized outgoing CEO Sheryl Sandberg, who commented on the business figures for the last time before her planned departure: "We are facing a cyclical downturn, but in the long term it will digital advertising market continues to grow.”
But Meta's profits have not only shrunk due to the slump in the advertising market, but mainly due to the restructuring of the group, which Mark Zuckerberg is driving forward. In the future, the metaverse is to become the driver with which Zuckerberg wants to bring exponentially growing sales to the group a second time. He is currently not only investing billions in this, but is also largely reorganizing the company internally and shrinking previously successful divisions.
Therefore, it weighs all the more heavily when the Metaversum division "Reality Labs" reports shrinking instead of growing sales: The Metaversum brought in sales of 452 million dollars in the last quarter, in the previous quarter it was just under 700 million dollars.
On the other hand there is a quarterly loss of 2.8 billion dollars, which is the result of the billions invested in the development of the technology. Meta expects the division to bring in even less money in the current third quarter. So far, not enough users have been interested in the metaverse, and the breakthrough as a mass application is still pending.
In addition, the latest business decisions have even amazed fans of the Metaverse: A prerequisite for the participation of as many users as possible is affordable virtual reality glasses, Meta is currently selling its “Meta Quest 2” for this. But as of August 1st, Meta announced at the beginning of the week that the group will raise the prices for the device by $100 to $400, making it more expensive to get started.
Apparently even Meta is currently having to put the brakes on costs. It also fits that earlier this month, in an internal question and answer session, Zuckerberg warned his employees about a tough future and asked those who were not ready for it to leave. "I think some of you might decide this place isn't for you."
For the development of the Metaversum technology, Meta has to massively relocate developer capacities internally, reassemble teams and save on personnel costs in the existing business areas. "This is a time that requires more intensity, and I expect that we'll do more with fewer resources," Zuckerberg told analysts.
This also does not rule out layoffs, but in any case, Meta's number of employees will no longer grow to the same extent as before. "Our plan is to steadily reduce staff growth over the next year," he said. "Many teams will shrink."
Meta not only wants to save on staff in the future, partnerships will also be canceled. Meta said it no longer wants to pay publishers for news content. According to US media, Meta is thus phasing out partnerships with US media, including the New York Times, CNN and the Wall Street Journal.
Given the challenges of developing new technology and trends, Meta's solution in the past has mostly been to buy technology in the form of startups - be it the messenger WhatsApp, the platform Instagram or the VR startup Oculus. Zuckerberg has always had an exceptionally good feel for acquisitions.
But in the metaverse, even that could be more difficult than in the past. The US competition authority Federal Trade Commission (FTC) filed an objection to Meta's recent acquisition in the VR business on Wednesday. Zuckerberg wanted to take over VR startup Within, which is primarily successful with the fitness app Supernatural in the metaverse. Meta had previously bought the makers of the successful fitness application “Beatsaber” – the group sees fitness as an application that could make the Metaversum more attractive for users beyond the target group of computer gamers.
"Zuckerberg has made it clear that his aspiration for the VR space is control over the entire ecosystem," warn the FTC's competition watchdog in its complaint. In an initial reaction, Meta called the complaint "speculative" and emphasized that there was strong competition in the market. The fact that the FTC targets even relatively small acquisitions at such an early stage seems like a shot in front of the meta bug: This time, so the message goes, you can't buy market dominance. You have to earn them.
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