The owner of Facebook and Instagram saw a drop in advertising sales in the three months to July, resulting in the company’s first year-on-year revenue decline.
Meta’s total revenue fell 1% to $28.8 billion (£23.7 billion), but the company avoided a drop in users.
Analysts believe the company’s growth has peaked after years of significant gains.
TikTok and other competitors have eroded its popularity, and more firms are competing for ad spending.
Meta, which typically controls more than 20% of the global ad market, warned investors that ad sales were likely to fall again in the coming months as e-commerce spending slowed after a pandemic surge and companies concerned about inflation and the Ukraine war spent more cautiously.
When asked about Instagram’s future hiring plans, CEO Mark Zuckerberg said the company would cut back “steadily” over the next year to combat both the downturn and its plans to shift resources into new areas like its virtual reality platform, Horizon. Zuckerberg believes that the company’s best chance for growth lies in the metaverse.
Regulators, including the Federal Trade Commission, America’s consumer watchdog, have expressed concern about Meta’s acquisition of the virtual reality fitness company Within Unlimited, which owns the app Supernatural, citing monopoly concerns.
According to Angelo Zino, senior equity analyst at CFRA Research, the payoff from those plans is years away, with Meta’s struggle to increase its users a sign of limited growth in the years ahead.
“Essentially, it’s now a low-to-no-growth company,” he explained.
Facebook reported that we have seen the first ever decline in daily users earlier this year.
In response, the company, which also owns WhatsApp, recently changed its algorithms on Instagram and Facebook to behave more like TikTok, recommending posts to users from accounts other than those they follow.
The moves have sparked outrage among users, perhaps most notably celebrity Kylie Jenner, who shared a post with her more than 360 million Instagram followers this week saying “Make Instagram Instagram once more. (Stop attempting to be Tiktok; all I want to see are cute photos of my friends.) Regards, everyone “.
However, the changes may be beneficial.
In June, Facebook reported that 1.97 billion people logged in on average each day, up from 1.96 billion in March, and 2.88 billion used one of its apps on a daily basis, up from 2.87 billion in March.
Mr Zuckerberg expressed satisfaction that people were spending more time on the company’s apps, but profits fell 36% to $6.7 billion in the quarter.
He stated that the company would continue to invest at a slower pace than planned.
“We face a number of challenges in the short term, but the investments we’re making should give us…a long-term advantage,” he said.
Meta, whose number two in command, Sheryl Sandberg, announced plans to leave the company in June, is not the only company facing difficulties.
Alphabet, the parent company of Google and YouTube, reported this week its slowest revenue growth since the pandemic began in 2020, with executives repeatedly warning investors that the company was feeling the effects of economic “uncertainty.”
Twitter also reported an unusual drop in revenue, while Snap warned of “incredibly difficult” conditions following its weakest quarter ever, sending shares down 25%.
“When you look at the ad space right now…growth is deteriorating at a very rapid pace, much faster than most people expected,” Mr Zino said.
According to Nikhil Lai, senior analyst for performance marketing at Forrester Research, Meta’s reliance on small and medium-sized businesses, which are “spooked” about the economy, makes it particularly vulnerable to any market slowdown.
Last year, Apple overhauled its privacy settings, which disrupted the company’s finely tuned model for targeting advertisements