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Facebook net gain drops 36% as economic outlook worsens

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

Cliff Saran

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Published: 28 Jul 2022 12: 00

Facebooks parent company, Meta, has reported a 36% decline in net gain for the next quarter of 2022. Profit declined from $10.4bn in Q2 2021 to $6.7bn because of its latest quarterly earnings.

Total revenue for the quarter dropped 1% to $28.8bn. The business is fighting competition from famous brands TikTok, and this past year launched a short-form video service, Reels. Worsening macroeconomic conditions also have negatively impacted its advertising customers. This directly affects just how much they devote to advertising on Facebook.

Regardless of lower earnings, the business plans to stay centered on developing new artificial intelligence (AI) capabilities and expanding its datacentre capabilities. It had been good to see positive trajectory on our engagement trends this quarter via products like Reels, and our investments in AI, said Mark Zuckerberg, Meta founder and CEO.

However, Facebooks vice-president of finance, Susan Li, wants its developers to create code better.

The business said it expects third-quarter 2022 total revenue to stay the number of $26-28.5bn, reflecting a continuation of the weak advertising demand it experienced through the entire second quarter, driven by broader macroeconomic uncertainty. Consequently, the business has lowered its spending in 2022 by $5bn. Total expenses are actually forecast to stay the number of $85-88bn.

However, the business is likely to expand its capital expenditure on AI-related technology. Through the follow-up call following the earnings webcast, Li said: We have been seeing the intensify in quarterly CapEx levels from Q1 and expect that to keep once we receive scheduled server deliveries, and we start meeting different datacentre construction milestones.

The step-up in CapEx this season 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.

She said that although it infrastructure plans have an extended horizon, they’re important investments necessary to support most of the core experiences the business is targeted on. We have been looking at methods to become more efficient in the manner we use hardware where which makes sense, and were emphasising efficiency inside our code development process.

AI has been used to improve the services it provides Facebooks advertisers. Chief financial officer David Wehner said: Were continuing to roll out advertiser solutions that produce usage of enhanced AI. For instance, in June we launched Meta Advantage. This consists of new automated created templates made to increase performance, and save effort and time for advertisers in building Stories ads.

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

When asked about how exactly the business planned to create profit the Metaverse, Wehner said: Theres clearly a variety of opportunities once we build out a platform in computing. I believe we are able to look at how other platforms have monetised as time passes. Were clearly selling hardware today with this Quest 2 product. Weve got an app store aswell, so thats a monetisation opportunity.

Addititionally there is the option to cultivate Facebooks advertising business on the brand new platform.

Commenting on the companys plans for the Metaverse and its own Reality Labs R&D, Leo Gebbie, principal analyst of connected devices at CCS Insight, said: Despite a conciliatory tone on the prior earnings call, where Meta pledged to invest in its metaverse vision more sensibly, its Reality Labs segment remains a location of heavy investment, with few returns showing.

Mark Zuckerberg continues to fight for the metaverse, arguing he sees this as an enormous opportunity that may unlock billions to trillions of dollars with time, but at this time, it remains a vaguely defined concept at best, he said.

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