On Thursday, a day after Meta released its corporate earnings for the second quarter and ended up missing its bottom and top lines, the company’s shares saw a 5% drop in the market.
There was almost a 1% drop in Meta’s revenue, as opposed to a year earlier, and the company’s share price has come to almost half of what it had been at the beginning of the year.
Moreover, the third quarter forecast of the company was also a disappointing one. The chief executive, Mark Zuckerberg, also informed analysts that the company would lay off its workforce in order to gear up for the economic slowdown.
The CEO said that the period requires a lot of intensity and they would be able to use fewer resources to get more done.
He also added that the digital advertising business would also take a hit because of the economic downturn, which has already had to suffer due to the privacy changes from Apple Inc.
In February, Meta had said that its revenue would take a hit of about $10 billion because of the App tracking transparency feature that Apple Inc. had introduced.
Zuckerberg invested in Reels in order to make a push into short videos, which were able to generate annual revenue of about $1 billion.
However, it is important to note that this product has not managed to generate revenue in the same efficient manner as the main news feed and Instagram Stories.
Market analysts said that the monetization ramp of Reels appears to be slow. They added that since the product changes being made were of a big magnitude, investors want to hear about material and unambiguous improvements.
Nonetheless, the analysts added that Reels seem to have a bright future. They said that they could help Meta progress and AI can also be handy in improving recommendations in terms of advertising and content.
Therefore, they expect a rebound in growth, especially if Meta becomes more disciplined where its cost structure is concerned.
However, it was also predicted that the digital ad market would continue to take a hit, particularly in light of the looming concerns of an economic recession.
This would mean trouble for Meta in the short term, but an improvement in Reels could help the company in making a recovery.
Analysts said that as long as the Facebook and Instagram owner continues to monetize Reels and makes efforts for mitigating the changes in privacy, then it would be able to enjoy speedy recovery after the period of uncertainty is over.
The parent company of Instagram, Facebook, and WhatsApp, Meta shared its corporate earnings a week after competitors Twitter and Snap.
The two had also posted disappointing results for the second quarter. The executives said that the online ad market is struggling because of mobile platforms and economic challenges.
In addition, TikTok, the short video sharing app, is also giving the companies a lot of competition in terms of online ads.