The social media giant is the latest to reveal signs of frailty in its ads-reliant business.
Facebook parent company Meta was the latest in a parade of tech giants revealing paltry third-quarter results Wednesday, underscoring the challenges faced by ads-reliant platforms as marketers and brands pull back spending.
The social media giant earned $1.64 per share, missing Wall Street's expectation of $1.89 per share. Meta's revenue for the third quarter was $27.71 billion, above the average analyst estimate of $27.38 billion, according to data from Refinitiv. Still, Meta's third-quarter revenue represented a 4.5% decrease compared with the same period last year.
The company, which makes most of its money from ads, also continued to add users as competition grows from platforms such as short-form video app TikTok. Meta said that every day, 2.93 billion people use one of its apps, which include Instagram, Facebook Messenger and WhatsApp.
Meta's mixed results come as other social networks struggle to attract ad dollars. A day earlier, both Spotify and Google-parent Alphabet revealed shrinking advertising demand, including the first drop in YouTube's revenue since parent Alphabet began disclosing it. Snap, the parent company of disappearing-message app Snapchat, saw its stock plunge nearly 25% last week after its revenue growth fell short of analysts' expectations.
Meta's stock dropped more than 19% in after-hours trading, to $105.09 per share. The company's outlook for revenue in the fourth quarter was between $30 billion and $32.5 billion. Analysts are expecting Meta to report $32.2 billion in revenue in the fourth quarter, according to Refinitiv.
Meta CEO Mark Zuckerberg acknowledged in a conference call with analysts that there are a number of challenges the company faces. "I appreciate the patience and I think that those who who are patient and invest with us will end up being rewarded," he said.
Meta has been looking for ways to cut costs as it braces for an economic downturn. In July, Meta reported its first drop in quarterly revenue in the company's history and missed earnings expectations. Zuckerberg said at the time that the company plans "to steadily reduce headcount growth over the next year." The company said Wednesday that some teams would remain the same size while others would shrink. Meta would only grow worker numbers in its "highest priorities."
Meta is betting big on the metaverse -- its term for the virtual spaces where people can work, play and socialize -- as its long-term future. It unveiled its high-end Meta Quest Pro VR headset this month. But Meta lost $3.67 billion on its virtual reality and augmented reality division and expects the losses to grow significantly in 2023. The company said that some of the costs are driven by the launch of its next generation consumer Quest VR headset, set for later next year.
The tech company also faces other challenges in its ads business. Apple's privacy changes have made it tougher for businesses to measure the effectiveness of their ads on Facebook and Instagram.
Insider Intelligence principal analyst Debra Aho Williamson said in a statement that 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," she said. "Meta is under incredible pressure from weakening worldwide economic conditions, challenges with Apple's AppTrackingTransparency policy, and competition from other companies, including TikTok, for users and revenue."