Meta appears to be heading for the first-ever revenue drop

Meta’s future may lie in the metaverse, but when the company reports its results on Wednesday, investors will focus on two other immediate bets: inflating the supply of short Reels videos to compete with TikTok and rebuilding its advertising system after that Apple has restricted access to user data. .

Chief Executive Mark Zuckerberg believes it will take time and the company needs to speed up the process, he told staff on a call late last month. The discussion focused on key issues that will be watched in Meta’s quarterly earnings release on Wednesday.

Meta is expected to register its first-ever revenue decline in its history as a public company, down 0.4% to around $29 billion, according to IBES data from Refinitiv.

Investors are also bracing for steady user growth and a third straight quarter of declining earnings and watching for signs of hardware project cuts and slowing hiring to manage costs.

The social media giant this year unveiled sweeping redesigns of Facebook and Instagram, mimicking the look of rival TikTok and algorithmic recommendations of viral short videos.

Meta is also investing heavily to rebuild its advertising system around its own user data, after privacy changes introduced by Apple last year downgraded Meta’s ad targeting capabilities.

Zuckerberg told employees on the call, which took place June 30, that Reels represented a “huge opportunity” for Meta, but also noted that the format was “only about 15% the size of TikTok. “.

“I think realistically we’re looking at a year and a half, maybe even more, before we really have a line of sight to have a solid leadership position,” he said.

The timeline for rebuilding the ad system was similar, he said. He repeatedly urged staff to increase their “intensity” to get through the period.

While Meta has the strongest proprietary user data in the industry, it also “has a lot of credibility to restore before investors can get comfortable with maintaining its leadership position in the secular growth of digital advertising,” RBC Capital Markets analysts wrote.

Zuckerberg told employees the economy has deteriorated since executives first planned ad reels and changes, and outlined plans to accelerate transitions so core business profits can finance long-term metaverse bets from Meta.

“Our job is basically to attract as many business as might be three years in two years, or a year and a half, while pushing things like expenses and cost growth,” he said.

If necessary, he added, his inclination was to “take more trouble in terms of being a little less profitable” in the short term, rather than cutting “funding for future things”.

The changes, however, created some negative reactions.

Instagram, which has been testing TikTok-like features, last week postponed plans to replace the app’s scrolling feed with a more immersive “panavision” style layout that fills the entire screen, from October early next year.

A Meta spokesperson said the company recognizes “that changes to the app can be an adjustment, and we want to take the time to make sure we’re doing it right.”

On Monday, two of Instagram’s biggest users, Kim Kardashian and Kylie Jenner, both shared a meme imploring the company to “Remake Instagram Instagram.”

“Stop trying to be TikTok, I just want to see cute pictures of my friends,” the post read. He signed: “Sincerely, everyone.”

Instagram manager Adam Mosseri acknowledged the criticism in a video on Tuesday, saying the layout was “not good yet” and that the company should “get it to a good place if we want it to happen.” ‘ship’ to all Instagram users.

The company would, however, continue to do tests and turn to video, he added.

© 2022 Thomson/Reuters. All rights reserved.

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