Meta Continues Slide in Q3 2022 Amid Calls for Cuts in Headcount, Metaverse Investments

The third quarter of 2022 was another disappointing three-month period for Meta, as Facebook’s parent company posted revenue of $27.71 billion, down 4% from $29.01 billion in the third quarter of 2021. While the company’s revenue for the quarter slightly exceeded projections of $27.38 billion from Refinitiv and $27.4 billion from Investopedia, that did little to pacify analysts, with Investing.com senior analyst Jesse Cohen saying in an email to Adweek, “Facebook’s awful quarter and weak outlook further underline the view that advertisers have been cutting back on spending as the overall economy battles with inflation, higher interest rates and shifting consumer patterns. Facebook is being negatively impacted by worsening macroeconomic headwinds, such as soaring inflation and worries about a possible recession." While the word Apple did not appear in Meta’s earnings release, last year’s changes to its App Tracking Transparency continue to slice into revenue at Meta and other social platforms. Apple’s policy change earlier this week, in which is said it will begin taking a cut of boosted posts, came too late to impact the third quarter but will likely be felt in the fourth quarter of 2022 and beyond. Meta said ad impressions delivered across its family of applications in the third quarter were up 17% year-over-year, while the average price per ad fell 18% over the same time period. Insider Intelligence principal analyst Debra Aho Williamson said in an email to Adweek, "Meta is on shaky legs when it comes to the current state of its business. Mark Zuckerberg’s decision to focus his company on the future promise of the metaverse took his attention away from the unfortunate realities of today: Meta is under incredible pressure from weakening worldwide economic conditions, challenges with Apple’s App Tracking Transparency policy and competition from other companies, including TikTok, for users and revenue." Across Meta’s family of apps, the company reported 2.93 billion daily active people on average for September, up 4% year-over-year, and 3.71 billion monthly active people, also up 4%. As for the flagship app, Facebook averaged 1.98 billion daily active users in September, up 3% year-over-year, and 2.96 billion monthly active users as of Sept. 30, up 2%. All of those user figures were virtually identical to projections by Investopedia and StreetAccount. Meta reported total headcount of 87,314 as of Sept. 30, up 28% from the same date last year, but all indications point to a reversal of that trend. An open letter to Zuckerberg from Meta investor and Altimeter Capital CEO Brad Gerstner called for a 20% reduction in headcount, with Gerstner writing, “We would encourage the company to move aggressively and cut at least 20% of employee-related expenses by Jan. 1, 2023. Why 20%? To put that in perspective, it merely takes the company back to mid-2021 levels of employee expense—and I don’t think anybody would argue that Meta wasn’t sufficiently staffed in 2021 to tackle a business that looks similar to how it looks today.” Meta’s investments in building out the metaverse came under scrutiny from investors like Gerstner, as well as the analyst community. Gerstner pointed out in his letter that the company intends to invest $10 billion to $15 billion annually in a project that may take 10 years to deliver results, writing, “An estimated $100 billion-plus investment in an unknown future is supersized and terrifying, even by Silicon Valley standards … But what is the right amount? By any normal company or startup standard, $5 billion per year would seem like an extraordinary amount. I have been told that Amazon spent far less in total to build Amazon Web Services. As such, we think Meta should cap its metaverse investments to no more than $5 billion per year, with more discrete targets and measures of success, as opposed to today’s much more ambitious and open-ended strategy. We have little doubt that investors and others would happily support scaling up these investments as the return on investment becomes more tangible—even if still long-term.” Williamson agreed, saying in her email to Adweek, "To return to stronger growth, Meta needs to turn its business around. As Facebook, it was a revolutionary company that changed the way people communicate and the way marketers interact with consumers. Today, it’s no longer that innovative groundbreaker. While Alphabet’s poor Q3 results show that that no digital publisher is immune to the worsening economy, Meta would benefit from less priority on the metaverse and more on fixing its core business." Meta chief financial officer David Wehner—who will become chief strategy officer Nov. 1 and be succeeded by vice president of finance Susan Li—projected fourth-quarter revenue of $30 billion to $32.5 billion and indicated that the company would take steps toward adjusting its workforce and investments in the metaverse. On headcount, Wehner said in Meta’s earnings release, “We are holding some teams flat in terms of headcount, shrinking others and investing headcount growth only in our highest priorities. As a result, we expect headcount at the end of 2023 will be approximately in-line with third-quarter-2022 levels.” He cautioned that Meta Reality Labs will see operating expenses accelerate in 2023 due to plans for the next generation of the Quest virtual reality headset for consumers later in the year, adding, “Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run.” Zuckerberg said in the company’s earnings release, "Our community continues to grow, and I'm pleased with the strong engagement we're seeing driven by progress on our discovery engine and products like Reels. While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth. We're approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company." Cohen was more skeptical, saying in his email to Adweek, "The social media company faces several challenges in the months ahead, mainly a slowdown in revenue growth due to reduced ad spending, as well as a lack of innovation and introduction of new user-friendly features. Looking ahead, Facebook still has to figure out how to deal with Apple's new privacy approach that limits tracking users, as well as the growing popularity of TikTok.”

Earnings Reports

Meta Continues Slide in Q3 2022 Amid Calls for Cuts in Headcount, Metaverse Investments

The company’s revenue of $27.71 billion was down 4% year-over-year

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