Meta shares plummet 20% after earnings released, company now worth what it was in 2017
Facebook parent Meta on Wednesday reported that its revenue declined for a second consecutive quarter, hurt by falling advertising sales as it faces competition from TikTok’s wildly popular video app.
The quarter’s weak results raised fresh questions about whether Meta’s plans to spend $10 billion US a year on the metaverse — a concept that doesn’t quite exist yet and possibly never will — is prudent while its main source of revenue is faltering.
The quarterly results from Meta Platforms Inc. sent its stock tumbling 19 per cent in after-hours trading to $105.20. If the sell-off holds through Thursday’s regular trading day, it will be the lowest it’s been since 2016. The stock closed Wednesday down 61 per cent for the year.
The Menlo Park, Calif., company earned $4.4 billion, or $1.64 per share, in the three month period that ended Sept. 30. Analysts were expecting a profit of $1.90 per share, on average, according to FactSet.
Revenue fell four per cent, to $27.71 billion from $29.01 billion.
Some of the company’s investors are concerned Meta is spending too much money and confusing people with its focus on the metaverse, a virtual, mixed and augmented reality concept that few people understand — while it also grapples with a weakening advertising business.
“Meta has drifted into the land of excess — too many people, too many ideas, too little urgency,” wrote Brad Gerstner, the CEO of Meta shareholder Altimeter Capital, earlier this week in a letter to Meta CEO Mark Zuckerberg. “This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes.”
In addition to an accelerating revenue decline, Meta also forecast weaker-than-expected sales for the current quarter, further raising worries that the revenue slump is more of a trend than an aberration.
“While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth,” Zuckerberg said in a statement. “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.”
From August 3:
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Meta said it expects staffing levels to stay roughly the same as in the current quarter. The company had about 87,000 employees as of Sept. 30, an increase of 28 per cent year-over-year.
“To return to stronger growth, Meta needs to turn its business around,” said Insider Intelligence analyst Debra Aho Williamson. “As Facebook Inc., 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.”
She went on to say that “Meta would benefit from less priority on the metaverse and more on fixing its core business.”
Meta’s Reality Labs unit, which includes its metaverse and virtual reality efforts, had an operating loss of $3.67 billion in the third quarter, compared with a loss of $2.63 billion a year earlier. Its revenue was $285 million.
Despite the revenue decline, about 3.71 billion people logged in to at least one of Meta’s family of apps — Facebook, Instagram, WhatsApp or Messenger — up four per cent year-over-year.
Facebook breaches election transparency law again
In a separate development on Wednesday, a Washington state judge on Wednesday fined Meta $25 million for repeatedly and intentionally violating campaign finance disclosure law, in what is believed to be the largest campaign finance penalty in U.S. history.
The penalty issued by King County Superior Court Judge Douglass North was the maximum allowed for more than 800 violations of Washington’s Fair Campaign Practices Act. Attorney General Bob Ferguson argued that the maximum was appropriate considering his office previously sued Facebook in 2018 for violating the same law.
Washington’s transparency law requires ad sellers such as Meta to keep and make public the names and addresses of those who buy political ads, the target of such ads, how the ads were paid for and the total number of views of each ad. Ad sellers must provide the information to anyone who asks for it. Television stations and newspapers have complied with the law for decades.
But Meta has repeatedly objected to the requirements, arguing unsuccessfully in court that the law is unconstitutional because it “unduly burdens political speech” and is “virtually impossible to fully comply with.” While Facebook does keep an archive of political ads that run on the platform, the archive does not disclose all the information required under Washington’s law.
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“I have one word for Facebook’s conduct in this case — arrogance,” Ferguson said in a news release. “It intentionally disregarded Washington’s election transparency laws. But that wasn’t enough. Facebook argued in court that those laws should be declared unconstitutional. That’s breathtaking. Where’s the corporate responsibility?”
In 2018, following Ferguson’s first lawsuit, Facebook agreed to pay $238,000 and committed to transparency in campaign finance and political advertising. It subsequently said it would stop selling political ads in the state rather than comply with the requirements.
Nevertheless, the company continued selling political ads, and Ferguson sued again in 2020.