Facebook’s stumbling ad business at the center of Big Tech’s revenue

The Meta Platforms logo is seen in Davos, Switzerland on May 22, 2022.

Arnd Wiegman Reuters

It’s earnings palooza week for Big Tech, with the four most valuable US companies plus Meta all posting quarterly results.

Alphabet and Microsoft kick off the action on Tuesday, with Apple and Amazon wrapping things up on Thursday. On Wednesday, Meta is sandwiched between them.

Investors in all five names are hurting this year as soaring inflation, rising interest rates and fears of recession hammered the tech sector. Within the mega-cap group, Meta suffered the most, losing half its value as Facebook’s struggling advertising business has yet to show signs of rebounding.

When Meta releases second quarter numbers, Wall Street will be watching closely for indications that growth is about to return. It should also see improved user trends, which have shunned the company’s apps in recent quarters in favor of rivals like TikTok.

“They’re starting to get sick of it,” said Debra Aho Williamson, an analyst at research firm Insider Intelligence. “Users are definitely moving to other platforms or they’re interacting less with Facebook, and when you start to see that happening in bigger and bigger amounts, that’s when advertisers really start to s ‘see it.’

Facebook is expected to post its first year-over-year revenue decline in the second quarter, and analysts expect a slight acceleration in the third quarter with mid-single-digit growth. The mood in the mobile advertising industry is austere in the report.

Snap last week reported disappointing second-quarter results, missing revenue and profit and announcing plans to slow hiring. Snap blamed a tough economy and Apple’s iOS privacy shift as significant hurdles, alongside competition from TikTok and others.

Barton Crockett, an analyst at Rosenblatt Securities, told CNBC that in terms of revenue, Snap and Meta are “both in the same place.”

“They’re not growing, but not really falling off a cliff right now,” said Crockett, who has a holding rating on both stocks.

From a user perspective, Snap holds up better. The company said last week that daily active users grew 18% year-over-year to 347 million. Facebook’s DAUs rose 4% in the first quarter to 1.96 billion, and analysts expect that number to hold steady, according to FactSet, which would represent growth of about 3% from to the previous year.

“Snap is in a stronger position in terms of user growth,” Crockett said.

Like Snap, Facebook has been hit hard by Apple’s iOS update, making it difficult for advertisers to target users. A big part of Facebook’s value for marketers is the targeting capabilities and the ability to track users across multiple third-party sites.

With the stock’s 50% decline this year, Meta’s market capitalization has fallen below $500 billion, making the company worth less than Tesla, Berkshire Hathaway and UnitedHealth, in addition to its Big Tech peers.

Amazon fell 27% in 2022, while Alphabet fell 25%, Microsoft 23% and Apple 13%.

The last time Meta reported earnings were below estimates. CEO Mark Zuckerberg said some of the challenges were due to the change in iOS as well as “larger macro trends, like the softness of e-commerce after the acceleration we’ve seen during the pandemic.”

The rise of TikTok poses a growing threat to Facebook and Snap as the popular short-video app reels from the lucrative teen and young adult market.

Meanwhile, Meta continues to spend billions of dollars creating the Metaverse, a digital world people can access with virtual reality and augmented reality glasses.

Meta is currently the leader in the nascent metaverse space, according to CCS Insight analyst Leo Gebbie. According to a recent Virtual Reality and Augmented Reality survey conducted by Gebbie’s company, Meta is the company most people associate with the idea of ​​the Metaverse, highlighting the importance of its investments and efforts. marketing.

But the metaverse is still years away from going mainstream and potentially turning a profit. Gebbie said he would look to see if Zuckerberg spent a lot of time on the earnings call discussing the futuristic Metaverse or focused on Meta’s real-world challenges.

“I think we’re definitely going to focus more on telling the story that Meta is a sensible company,” Gebbie said.

LOOK: Meta will become the No. 1 social player by 2023

Leave a Comment