Meta reports sales fall, but beats expectations

San Francisco: Facebook and Instagram owner Meta on Wednesday reported its first annual sales drop since the company went public in 2012, but the fall was less brutal than expected, sending its share price soaring.

The social media giant said sales dropped one percent to $116.6 billion in 2022, while it also announced that the number of users on Facebook hit two billion for the first time.

In a statement, CEO and founder Mark Zuckerberg pointed to the success of improved algorithms on Meta's video Reels service, that was delivering short clips more efficiently to users on Facebook and Instagram.

Meta competes fiercely with TikTok, the Chinese owned video-sharing platform that has proved a formidable rival in attracting young users away from once-dominant Instagram.

Zuckerberg also lauded perfected artificial intelligence to better distribute ads after changes on the iPhone decided by Apple seriously hampered Meta's ability to target users.

The 2022 results ended a bad year for Meta, which in November announced it would lay off 11,000 employees or 13 percent of staff in the largest worker reduction in the company's history.

Zuckerberg said his company's "management theme for 2023 is the 'Year of Efficiency' and we're focused on becoming a stronger and more nimble organization."

Big tech platforms have been suffering from the souring economic climate, which is forcing advertisers to cut back on marketing, and Apple's data privacy changes, which have reduced leeway for ad personalization.

Targeted advertising

Apple sent shockwaves through the industry in 2021 when it began inviting iPhone users to opt out of having their online activity tracked by apps for the purpose of targeting ads.

This dealt a punishing blow to Facebook and Instagram that depend on super-targeted advertising for revenue.

Meta last year said Apple's policy, which impacts the precision of the ads it sells and thus their price, would cost the social media giant $10 billion in lost revenue in 2022.

Apple's iPhones hold about 55 percent of the smartphone market in the United States and about one third of smartphone users in Europe, the world's biggest ad markets.

The company is also under pressure for making a huge gamble on the metaverse, the world of virtual reality that Meta believes will be the next frontier online.

The bet however has yet to pay off with Meta's Reality Labs, the division that builds the necessary VR headsets and software, posting an operating loss of $4.28 billion in the last quarter of 2022. This followed big losses in the previous quarters.

"With losses at its VR division mounting, Mark Zuckerberg is going to have to accept an unfortunate reality: Virtual worlds are simply not what businesses or consumers want right now," said Insider Intelligence analyst Debra Aho Williamson.

Investors last year punished Meta, sending the company's share price down by an astonishing two thirds over 12 months, but the stock has so far recovered some of the ground in 2023.

In after-hours trading, Meta's share price was up as much as six percent.