Meta Platforms (META -1.12%) announced its fiscal 2022 second-quarter earnings after the markets closed on July 27. The social media giant reported its first-ever decline in revenue. Meta faces several headwinds, including privacy policy changes from Apple, a slowing economy, and the Russian invasion of Ukraine.
It's all boiling down to advertisers becoming less willing to spend money on Meta's platforms. As a result, Meta's shares sank 6% on the day following the announcement of its financial results. Let's examine the quarter in more detail.
Meta's sales fall for the first time in its history
In its second quarter, which ended on June 30, Meta's revenue decreased by 1%. While this was the company's first year-over-year revenue decline since going public, it was up against a tough comparison: Sales skyrocketed 56% in the prior-year period. Considered in this light, the drop is not as bad as it appears. Still, it's not great news and magnifies the difficulty Meta has had adjusting to several headwinds.
Apple's privacy changes make it more challenging for Meta to collect data on its 2.88 billion daily active users. This information was critical in Meta's ability to sell targeted advertising. Without this extra layer of data, marketers are not willing to pay as much to gain the attention of the company's users. That can partly explain why Meta reported the price it earned per advertisement fell by 14% year over year in Q2.
Another factor hurting Meta is changing consumer habits on social media. Increasingly, people prefer interacting with short-form videos instead of photos. Popularized by TikTok, folks spend more time creating, sharing, and watching these videos. In reaction to consumer trends, Meta is promoting its own short-form video format, Reels. The feature is gaining traction but is not yet as lucrative as the legacy consumption methods. Management mentioned the move is necessary and positive for the long term while acknowledging it will cannibalize more profitable formats on Meta's apps.
Beyond company-specific factors, Meta's business is hurting from the Russian invasion of Ukraine. Facebook added 8 million daily active users quarter over quarter, including a loss of 4 million users from Russia and Ukraine. Furthermore, with a war raging, marketers, predominantly European ones, are trimmingadvertising budgets due to the uncertainty.
Unfortunately for Meta's shareholders, these issues will not resolve quickly. The company's revenue forecast for Q3 is between $26 billion and $28.5 billion. Even the high end of that guidance is below the $29 billion in revenue it earned in the third quarter of last year.
Meta Platforms is down, but not out
As bad as its near-term prospects may appear, it's not time to sell Meta's stock. Shares are already 58% off their highs, so arguably, all of the bad news is priced in. Most importantly, the company boasts 2.88 billion people who use one of its apps daily. There will always be a market for businesses, institutions, and people who will want to pay for the opportunity to influence the purchasing decisions of nearly 3 billion users.
