Meta earnings call: Tackling the downturn; Reels revenue tracking to $1B/year
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Meta Platforms (NASDAQ:META) was seeing a steady postmarket decline of about 3.4% during its Q2 earnings conference call, following a quarter where it posted its first revenue decline as a public company and forecast that current-quarter revenues would fall somewhere from 6%-14% short of Wall Street's expectations.
On the call, CEO Mark Zuckerberg took on the downturn up front.
"Engagement trends on Facebook have generally been stronger than we anticipated and strong real growth is continuing to drive engagement across Facebook and Instagram," Zuckerberg said. "That said, we seem to have entered an economic downturn that will have a broad impact on the digital advertising business. And it's always hard to predict how deep or how long these cycles will be, but I'd say that the situation seems worse than it did a quarter ago."
Last quarter, Zuckerberg said, he discussed a number of multi-year projects to re-accelerate the business, and those projects are still important, but given the more recent revenue trajectory, "we're slowing these investments and pushing some expenses that would have come in the next year or two off to a somewhat longer timeline."
Along with reducing headcount growth, "many teams are going to shrink so that we can shift energy to other areas inside the company." (Zuckerberg had said a month ago that the company was slashing hiring of engineers, and that he'd be "turning up the heat" on existing hires trying to meet more aggressive goals.)
He expressed confidence, though: "Previously challenging periods have been transformational for our company and helped us develop our next generation of leaders, and I expect this period to be no different. I expect that we're going to find a way to keep investing in our top priority areas. And I think we're going to come through this period as a stronger and more disciplined organization."
Turning to product details, the company has crossed a $1B annual revenue run rate for ads on Reels (the company's short-video TikTok (BDNCE) rival), and Reels has a higher revenue run rate than Stories did in the same period post-launch, Zuckerberg said. Time spent on Reels rose 30% across Facebook and Instagram during the quarter, he said.
On ads: There are a number of challenges in the near term, but investments the company is making should give a comparative advantage longer-term, he said.
"One near-term challenge is the growth of short term video. Reels doesn't yet monetize at the same rate as Feed or Stories. So in the near term, the faster that real growth is, the more revenue that actually displaces from higher monetizing services." In theory the company could mitigate short-term headwinds by pushing less on growing Reels, "but that would be worse for our product and business longer-term."
On the "signal loss" from Apple's iOS privacy changes, "our approach here is to grow first-party understanding of people's interests by making it easier for people to engage with businesses in our own apps, whether that's their business messaging shops or new ad products." Some 40% of advertisers are using click-to-messaging as part of its business-messaging response to the changes, he said.
The third key challenge is the macro economy, and "We can't control the timing of when things will bounce back," Zuckerberg said. "But I know that periods like this are when marketers reevaluate their budgets and are even more focused on finding the highest performing advertising - and in the last recession we invested in our ads business through the downturn, turned and came out stronger on the other side, and I'm focused on making sure that we do the same today."