Meta faced a drop in ad revenue for the first time in its 18 year history in the three months to July. This drop has some declaring imminent doom.
Users were up, but the total revenue for the parent company of Facebook and Instagram fell to $28.8 billion. That’s a decrease of one percent year-over-year.
Meta CEO Mark Zuckerberg told investors that turbulent times for the global economy are causing marketers to re-evaluate advertising budgets. Apple privacy updates, the growth of short-form video, and the normalising of e-commerce post-pandemic peaks were also named as contributing factors.
Meta’s forecast for the current quarter was similar. This reflects the continuation of the “weak advertising demand environment” they’re in.
Is it all downhill from here for Meta?
The unprecedented drop in revenue has some analysts saying Meta’s growth has peaked. Many are pointing to rival video-sharing app TikTok as the biggest threat to Meta’s user growth and revenue.
But not all share that view.
Sabri Suby, founder of the digital agency King Kong, says Zuckerberg has weathered worse. The figures released are not to be read as the start of Facebook’s decline, he says.
“It is fair to say that TikTok is one of a few major threats to Facebook since it launched 18 years ago,” says Suby.
“Facebook’s usual reaction would be to simply buy out the offending platform (Instagram) but with TikTok, this isn’t possible. But this isn’t Zuckerberg’s first rodeo.”
Suby admits that Facebook has faced challenges in its attempts to keep a younger audience, but it’s still the place for businesses to target adults.
Facebook’s ad platform
The real ‘elephant in the room’ is TikTok’s potential to rival Facebook’s ad platform.
“Costs to run ads on Facebook are soaring, and the quality is declining. The platform is saturated. It’s made complex by censorship and millions of businesses competing for the same space,” says Suby
There’s a fear Facebook will fade out with its older audience. But Facebook still has a ‘very valuable place in the market’ according to Suby.
“Facebook can, and likely will, continue to imitate rivals with more video content and upgrades, and a major web3 re-brand, but this isn’t to be taken as a desperate attempt to keep up,” he says.
“Zuckerberg has shown time and time again that he is adaptable to change – for example, when the business made a complete pivot from desktop to mobile. This was a much bigger threat than what they’re facing with TikTok today, and a pivot they barely survived. Yet they still went on to become the number one player in this space.”
It’s yet to be seen whether Facebook will survive this threat to its future revenue growth. Zuckerberg, of course, says Meta will be OK.
“Previously challenging periods have been transformational for our company,” Zuckerberg says in the Meta earnings call.
“I expect this period to be no different.”
To pull through, Zuckerberg says Meta will invest in top priority areas.
The first is its AI recommendations. He also says advances in AI can help solve the Apple problem, enabling Meta to deliver better personalised ads while using less data.
The second priority is developing the Metaverse, free from the constraints of competitors.
“Given some of the product and business constraints we face now, I feel strongly that developing these platforms will unlock hundreds of billions of dollars. Maybe even trillions, over time,” Zuckerberg says.
According to Suby, Facebook also urgently needs to address its customer service.
“Facebook falls flat when it comes to customer support when compared with TikTok and Google where you can speak directly with a rep for support. This is almost non-existent for Facebook and something their ‘like it or lump it’ lion’s-share ethos has satisfied to date,” Suby says.
“This won’t cut it anymore.”