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Facebook net income drops 36% as economic outlook worsens

Meta, the parent company of Facebook, is planning to slash spending by $6bn, but remains focused on AI development

Facebook’s parent company, Meta, has reported a 36% decline in net income for the second quarter of 2022. Profit declined from $10.4bn in Q2 2021 to $6.7bn for its latest quarterly earnings.

Total revenue for the quarter dropped 1% to $28.8bn. The company is struggling with competition from the likes of TikTok, and last year launched a short-form video service, Reels. Worsening macroeconomic conditions have also negatively impacted its advertising customers. This directly affects how much they spend on advertising on Facebook.

In spite of lower earnings, the company plans to remain focused on developing new artificial intelligence (AI) capabilities and expanding its datacentre capabilities. “It was good to see positive trajectory on our engagement trends this quarter coming from products like Reels, and our investments in AI,” said Mark Zuckerberg, Meta founder and CEO.

However, Facebook’s vice-president of finance, Susan Li, wants its developers to write code more efficiently.

The company said it expects third-quarter 2022 total revenue to be in the range of $26-28.5bn, reflecting a continuation of the weak advertising demand it experienced throughout the second quarter, driven by broader macroeconomic uncertainty. As a result, the company has lowered its spending in 2022 by $5bn. Total expenses are now forecast to be in the range of $85-88bn.

However, the company is planning to expand its capital expenditure on AI-related technology. During the follow-up call after the earnings webcast, Li said: “We are seeing the step up in quarterly CapEx levels from Q1 and expect that to continue as we receive scheduled server deliveries, and we start meeting different datacentre construction milestones.

“The step-up in CapEx this year is in large part driven by our AI/ML [machine learning] investments to power ranking and recommendations in key priority areas like Ads, Reels and [Facebook] Feed.”

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She said that while IT infrastructure plans have a long horizon, they are important investments required to support many of the core experiences the company is focused on. “We are looking at ways to be more efficient in the way we use hardware where that makes sense, and we’re emphasising efficiency in our code development process.”

AI is being used to enhance the services it offers Facebook’s advertisers. Chief financial officer David Wehner said: “We’re continuing to roll out advertiser solutions that make use of enhanced AI. For example, in June we launched Meta Advantage. This includes new automated created templates designed to increase performance, and save time and effort for advertisers in building Stories ads.”

The company also launched Advertising Lookalikes and Advantage Detailed Targeting, which Wehner said automatically increases audiences that are likely to improve performance with better targeting advertisers, which are AI-powered products.

When asked about how the company planned to make money in the Metaverse, Wehner said: “There’s clearly a number of different opportunities as we build out a platform in computing. I think we can look at how other platforms have monetised over time. We’re clearly selling hardware today with our Quest 2 product. We’ve got an app store as well, so that’s a monetisation opportunity.”

There is also the option to grow Facebook’s advertising business on the new platform.

Commenting on the company’s plans for the Metaverse and its Reality Labs R&D, Leo Gebbie, principal analyst of connected devices at CCS Insight, said: “Despite a conciliatory tone on the previous earnings call, where Meta pledged to fund its metaverse vision more sensibly, its Reality Labs segment remains an area of heavy investment, with few returns to show.

“Mark Zuckerberg continues to fight for the metaverse, arguing that he sees this as a massive opportunity which will unlock billions to trillions of dollars in time, but right now, it remains a vaguely defined concept at best,” he said.

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