Meta’s latest earnings report reveals the company’s first-ever year-over-year decline in advertising revenue, signaling a downward trend that it expects to continue.
The Q2 2022 earnings report from Meta marks the end of its decade-long streak of ad revenue growth.
We’ll explain why this is significant, what it means for marketers, and what’s next for Meta in light of these figures.
Meta’s Revenue Drop Blamed On Economic Downturn
There are several factors contributing to Facebook’s unprecedented revenue drop.
In an earnings call with investors, Meta CEO Mark Zuckerberg says his company missed targets due to an economic slowdown that’s affecting the whole digital ad market:
“… we seem to have entered an economic downturn that will have a broad impact on the digital advertising business. It’s always hard to predict how deep or how long these cycles will be, but I’d say that the situation seems worse than it did a quarter ago.”
On top of a weak economy, Meta has to contend with Apple’s privacy settings.
The economy is only accelerating a drop in revenue growth that started when Apple made it possible for users to ask apps not to track their data.
As a result, people see less relevant ads in their feeds because Meta doesn’t have access to as much data about them.
This adds to a grim situation for Meta’s advertising business, and Zuckerberg is cautioning investors to expect the declining revenue to continue into the next quarter.
It’s not all bad, however. In the next section, we’ll review more highlights from the report.
What Are The Numbers?
Meta’s ad revenue dropped one percent in Q2 2022 compared to last year’s period.
Meta brought in $28.82 billion from ads, though it expected to earn $28.94 billion.
Zuckerberg’s Metaverse project, known as the Reality Labs division, is a considerable expense. Work on the project cost Meta $2.8 billion in Q2.
One positive trend to note is Facebook’s daily active users are up three percent. There are now 1.97 billion people logging in every day.
Daily active users across Facebook, Instagram, Messenger, and WhatsApp are up four percent from last year.
There’s no indication users are losing interest in Meta’s suite of apps, which means there’s an opportunity to boost revenue if the company can figure out how to make ads more effective.
That leads us to our next section, where we’ll review what this means for businesses and marketers using Meta’s apps daily.
What Does It All Mean?
Meta’s apps aren’t declining in popularity by any means.
The audience is there. The problem is that advertisers have smaller budgets, and they’re not getting the same value from ads as they used to.
To remedy the issue of declining ad revenue, Meta has plans to offer new types of monetization. More specifically, the company is working on ways to make money from Reels.
In response to the Q2 earnings report, Zuckerberg stresses his commitment to building Facebook and Instagram around Reels.
The Reels viewer is one of the only sections of Facebook and Instagram that isn’t fully monetized. So it’s not a revenue driver right now, but it can potentially become one in the future.
Zuckerberg says in the earnings call:
“In the near term, the faster that Reels grows, the more revenue that displaces from higher monetizing products.”
Meta’s goal is to be more like TikTok. As Meta increases its focus on Reels, that will inevitably lead to other types of content getting shown less.
For businesses and marketers, it’s worth considering how to incorporate short-form video into the mix to maintain visibility on Meta’s apps.
To that end, if you’re not getting the results you’re looking for with Facebook ads, Reels could be a viable solution to expand your reach.
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