Introduction
In a surprising turn of events, Meta (formerly known as Facebook) recently reported its first-ever decline in quarterly revenue. The company’s revenue for the second quarter of 2022 was $28.82 billion, a 1% decrease compared to the same period in 2021. Even more concerning is Meta’s forecast for the third quarter, which predicts a further drop in revenue to the range of $26-28.5 billion1.
Meta attributes this decline to weak advertising demand, driven by the broader macroeconomic uncertainty. Another factor impacting Meta’s revenue is Apple’s anti-tracking feature for iOS, which makes it challenging for Meta’s social platforms to connect users with third-party ads and content1.
To recover from this setback, Meta has devised a three-step plan, which includes cost-cutting measures, a focus on Reels, and a commitment to building the metaverse. In this article, we will delve into the details of Meta’s recovery plan and explore its potential effectiveness.
I. Cost-Cutting Measures
1. Employment Strategy
To address the revenue decline, Meta is implementing a hiring freeze and adopting a more aggressive performance management approach. Mark Zuckerberg, the CEO of Meta, emphasized the need to weed out underperforming employees and reduce headcount growth over the next year1.
Zuckerberg believes that during this challenging period, Meta needs to accomplish more with fewer resources. He stated, “Our plan is to steadily reduce headcount growth over the next year. This is a period that demands more intensity, and I expect us to get more done with fewer resources”1.
2. Reels Engagement
Meta’s focus on Reels, a short-form video feature, is an integral part of its recovery plan. Zuckerberg highlighted the growth in Reels engagement, stating that it accounted for 20% of the time people spent on Instagram last quarter and experienced a 30% increase on both Instagram and Facebook in the current quarter1.
While Reels monetizes at a lower rate compared to Feeds or Stories, Meta aims to leverage its rapid growth to generate more revenue. Zuckerberg noted that Reels’ monetization efficiency is exceeding expectations, with annual revenue from ads surpassing $1 billion1.
II. Embracing the Metaverse
Recognizing the potential of the metaverse, Meta is doubling down on its development and expansion. The metaverse refers to a virtual reality space where users can interact with a computer-generated environment and other users in real-time1.
Zuckerberg expressed his confidence in the metaverse’s ability to unlock significant economic potential, stating, “Developing these (metaverse) platforms will unlock hundreds of billions of dollars, if not trillions, over time.” He acknowledged that this endeavor would be costly but believed it would be crucial in shaping the future of how we live1.
As part of its metaverse strategy, Meta will continue to enhance Horizon, its social metaverse platform, and plans to launch a web version accessible across all platforms in the near future1. This expansion is expected to attract a larger user base and increase revenue through avatar customization and other monetization avenues.
III. Challenges and Skepticism
While Meta’s recovery plan shows promise, several challenges and concerns must be considered.
1. Reels as a TikTok Ripoff?
Some industry experts view Meta’s focus on Reels as a forced attempt to compete with TikTok rather than an effort to introduce unique and engaging features. Mike Proulx, VP principal analyst at Forrester, suggests that Meta is aggressively trying to monetize Reels by essentially forcing its usage upon users. This strategy may not resonate with Gen Z users and could potentially accelerate their migration to other platforms1.
2. The Metaverse Skepticism
The concept of the metaverse is still relatively new and not well understood by the general population. A recent study revealed that only 16% of people have a clear understanding of what the metaverse entails1. Moreover, in the UK, 52% of online adults who are familiar with the concept expressed their reluctance to participate if Meta were to control it1.
According to Proulx, consumer skepticism towards the metaverse poses a significant challenge for Meta’s growth in the short term. Convincing users to embrace and actively engage with the metaverse will require addressing concerns and building trust1.