August 8, 2022

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Facebook's owner Meta has missed expectations - posting its first ever drop in revenue

Facebook’s owner Meta has missed expectations – posting its first ever drop in revenue

Meta Platforms, the parent company of social media such as Facebook, Instagram and Whatsapp, presented its second-quarter numbers on Wednesday after the market closed.

Revenue was $28.8 billion in the first quarter, compared to $29.1 billion in the same period last year. This was the first time the company had seen a decline in revenue on an annual basis. Up front, a turnover of $28.9 billion was expected, according to estimates obtained by Bloomberg.

And Meta’s share fell about five percent in after-market trading, after the company disappointed the market with its guidance for the third quarter. Revenue forecasts now range between $26 and $28.5 billion, while $30.3 billion was expected.

Most positively, the number of daily users was 1.97 billion in the second quarter, while 1.95 billion users were expected previously.

The number of monthly active users reached 2.93 billion, slightly below expectations of 2.95 billion.

Troubled first half of the year

Meta’s stake rose 6.6 percent on Wall Street earlier Wednesday, and A small jump as the market was reassured by three interest rate hikes by the US Central Bank.

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So far this year, the stock price has halved, and the worst drop came at the beginning of February When the fourth quarter report of last year came with great disappointment.

The digital advertising market is struggling as a result of high inflation and high interest rates, so there was a lot of excitement linked to Wednesday’s numbers in the wake of disappointing reports from Snap and Twitter last week.

However, Meta also faces other challenges.

Among other things, Apple’s App Tracking Transparency feature prevents Privacy from tracking user activity on the web and apps, impairing Meta’s ability to provide advertisers with accurate information about user behavior.

Moreover, the company faces stiff competition from Tiktok in particular. Although Tiktok currently only has about 1 billion monthly active users versus about 2.95 billion Meta users, the service is very popular among younger users. Therefore, Meta has focused more on its product Reels, a Tiktok-style short video feature.

Meanwhile, Meta is trying to transition from a social networking company to one focused on AR/VR experiences through the so-called “metaverse”.

Earlier in July, Zuckerberg stated that The company will employ 30% fewer employees in 2022 than previously plannedHe told his employees to prepare for a “deep economic downturn”.

Realistically, it’s possible that there were a number of people in the company who shouldn’t have been here, Zuckerberg said, which led to internal turmoil.

Analysts remain positive

Despite the price crash and challenges, analysts were mostly positive on behalf of Meta stock.

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An overview in the Wall Street Journal shows that out of 54 analysts there are 33 buy and 14 are pending. The average target price is $257.2, which is more than 50 percent up from Wednesday’s price of around $168.

There are more divided opinions about the stake among Nordic fund managers.

Swede Philip Bowman, who runs Öhman Global Growth, explains why he avoids Meta:

In part, Apple’s iOs updates have made it as difficult to track activity between apps and make money as before from highly targeted ads. Additionally, Meta has weak subscription growth, and strong competition from Tiktok in particular. Now they’re betting big on the Metaverse, but it could go either way.

On the other hand, Odin director Robin Øvrebø has a smaller position in the Meta stake, and believes that the company still has a strong business model.

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