Facebook earnings were not as bad as feared, but they were still pretty bad

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Facebook parent Meta Platforms Inc.’s results were not been as bad as Wall Street was fearing, but there still isn’t much to cheer about.

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Meta FB,
-3.32%
reported first-quarter revenue of $27.9 billion, below analysts’ consensus expectations of $28.3 billion and reflecting an anemic growth rate of 7%. It was the first time the company formerly known as Facebook reported a single-digit revenue growth percentage since going public in 2012, and it appears even worse performance is ahead.

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Revenue has been slowing in recent quarters, as Meta Chief Financial Officer David Wehner has been warning would happen for years, but compared with the year-ago March quarter of 2020, when revenue grew 48%, the results were even more disappointing. Meta shares, however, surged 18% in after-hours trading, after suffering the worst quarter in their history and falling even more in recent days.

Meta blamed the revenue slowdown on the transition of user preferences to short-form video, known on Facebook as Reels. Of course, the best-known name for those types of videos at the moment is TikToks, named for the mobile app that is stealing attention from all of Silicon Valley’s previously hot platforms, from Alphabet Inc.’s GOOGL,
-3.67%
GOOG,
-3.75%
YouTube to Snap Inc.’s SNAP,
-5.58%
Snapchat.

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See Google’s troubles lead analysts to point fingers squarely at YouTube

“We’re managing headwinds from the shift to short form video that I just mentioned,” Meta Chief Executive Mark Zuckerberg told analysts on a conference call. “In the near-term, this is a drag on revenue because Reels monetization is less than Feeds or Stories, but I expect that will improve over time. We’ve seen this type of media format transition multiple times before.”

Zuckerberg has managed these transitions before, including adopting the Stories format after it took off on Snapchat. He also noted that the transition in 2012 from a desktop feed into a mobile feed for smartphones led to a revenue slowdown, and Facebook’s revenue growth in 2012 did slow to less than 40% from triple-digit gains in the first three quarters in 2011.

Single-digit growth is another thing entirely, however, and there are plenty of other complications for Facebook, from the conflict in Ukraine to changes in Apple Inc.’s AAPL,
-0.15%
changes to iOS to softness in e-commerce after a big acceleration during the pandemic. Zuckerberg’s second-quarter forecast for revenue ranging from $28 billion to $30 billion was even more anemic, implying Facebook’s first-ever year-over-year decline in revenue could be coming after Facebook reported $29.07 billion in revenue in the June quarter a year ago.

Zuckerberg has shifted to focusing on virtual and augmented reality as social media has slowed down, but the issues Facebook faces are going to damage those plans for the rest of Meta. His desire to invest heavily in the company’s Reality Labs business is meeting actual reality, as executives lowered their capital expenditures plans for the rest of the year by $3 billion and said they would curtail some hiring plans for the year.

In case you’re adding things together, that is difficulty in the short-term with trying to copy TikTok, and effects on the long-term plan to make the metaverse happen. No matter how much the stock goes up on Thursday because results didn’t live up to the worst fears, it doesn’t make those results a good thing for Meta.

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Credit: www.marketwatch.com /

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