Despite reels focus, Meta heads for revenue drop
Menlo Park, CalifornMeta’s future may lie in the metaverse, but when the company reports results on Wednesday, investors will be focused on two more immediate bets: pumping up short-video offering Reels to compete with TikTok and rebuilding its ads system after Apple throttled access to user data.
Chief Executive Mark Zuckerberg believes that will take time, and that the company needs to speed up the process, he told staffers on a call late last month. The discussion hit on key issues that will be watched in Meta’s quarterly results release on Wednesday.
Meta is expected to record its first-ever revenue drop in its history as a public company, down 0.4% to about $29 billion, according to IBES data from Refinitiv.
Investors are also bracing for flat user growth and a third consecutive quarter of profit declines and are watching for signs of hardware project cuts and slower hiring to manage costs.
The social media giant this year has unveiled sweeping redesigns of Facebook and Instagram, imitating rival TikTok’s look and algorithmically driven recommendations of viral short videos.
Meta is also investing heavily to rebuild its ads system around its own user data, after privacy changes introduced last year by Apple degraded Meta’s ad targeting capabilities.
Zuckerberg told employees on the call, which took place on June 30, that Reels represented a “huge opportunity” for Meta, but also noted that the format was “still only around 15% of the size of TikTok.”
“I think realistically we’re looking at a year and a half, maybe even longer, before we’ll really have a line of sight to having a strong leadership position,” he said.
The timeline for rebuilding the ads system was similar, he said.
He repeatedly urged staff to increase their “intensity” to get through the period.
While Meta has the strongest first- party 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 digital advertising’s secular growth,” analysts from RBC Capital Markets wrote.
Zuckerberg told employees that the economy had worsened since executives first planned the Reels and ad changes, and outlined plans to expedite the transitions so profits from the core business could fund Meta’s long-term metaverse bets.
“Our job is basically to bring in as much of the business that might be three years out into two years out, or one and a half years out, while also pushing on things like expenses and cost growth,” he said. If needed, he added, his inclination was to “take more pain in terms of a little bit less profitability” in the short term, rather than cutting back on “funding for future stuff.”The changes have created some backlash, though.