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Balance sheet submission: Meta share collapses: Facebook mother earns less – authorities look at VR business | news

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The Facebook group Meta has suffered its first drop in sales and blames it on economic fears. Meta does not expect an improvement for the next few months either. The development is tantamount to the end of an era: Since the IPO in 2012, things have only gone up rapidly. Founder and boss Mark Zuckerberg announced that the group now wants to focus on long-term investments.

Meta revenue fell about 1 percent year over year to $28.8 billion in the second quarter. The bottom line is that profits shrank by 27 percent to almost 6.7 billion dollars (around 6.6 billion euros). Top executive Sheryl Sandberg also pointed to the strong dollar leading to an unfavorable translation of foreign earnings on the balance sheet. Without the rise in the dollar exchange rate, there would have been a three percent increase in sales, she emphasized in a conference call with analysts.

The sales forecast for the current quarter fell with a range of 26 to 28.5 billion dollars, lower than analysts had expected. CFO Dave Wehner cited the weakening of the online advertising market, which was already noticeable in the second quarter, in view of the economic uncertainty. Zuckerberg also referred to the downturn in the economy: “I would say the situation is worse than a quarter earlier.”

So far, Facebook and Meta have shown themselves to be resilient to all economic downturns. Because with the knowledge of the interests and social connections of billions of users, the platform offered advertisers the opportunity to address their ads specifically to the desired target groups.

But the first cracks in the system appeared last year after Apple introduced new privacy protection rules. Developers like Facebook are now required to ask iPhone users for permission if they want to track their behavior across different apps and services. Many users rejected this – and thus torpedoed ad models on Facebook, among others.

Despite this, Facebook is still mighty. The number of users who access at least one app from the group every day rose from 2.87 to 2.88 billion within three months. Facebook saw an increase from 1.96 to 1.97 billion daily users. The group also includes Instagram and WhatsApp.

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Among Zuckerberg’s long-term initiatives is the company’s focus on the “metaverse,” a virtual world into which he envisions business and social life increasingly shifting. Facebook is at the forefront of the movement with its virtual reality (VR) activities, which immerse users with special glasses into digital worlds. The Reality Labs division, in which the “Metaverse” development and the VR business are bundled, posted an operating loss of $2.8 billion in the last quarter alone. Meta announced a price increase for its VR glasses a few days ago.

A clear signal also came from Washington on Wednesday that the US competition authorities are keeping an eye on the group’s “Metaverse” activities. The FTC went to court to bar Meta from acquiring Within Unlimited, which makes the VR fitness app Supernatural. According to the lawsuit, Meta wants to dominate the entire “Metaverse”.

In today’s core business, Meta faces competition from the Chinese app Tiktok, which attracts mostly young users with its endless flow of short videos. The clips are suggested by a software algorithm that adapts to users’ interests. Meta’s short video copy, dubbed “Reels,” is now being widely embedded on Facebook and Instagram.

For the platform, this means a fundamental departure from its roots: after all, the original idea is that as a user you can network with friends, family and acquaintances as well as organizations or companies and then see their contributions. But now 15 percent of the content in users’ Facebook feeds — and even more on Instagram — comes from someone they don’t follow, Zuckerberg said. The proportion should double by the end of 2023.

It is also clear that the criticism from Instagram users, including celebrities such as Kim Kardashian, that the photo service is becoming a second Tiktok should have no consequences. The advance of the “Reels” is initially not even good for business. Because Meta earns less from ads in the vicinity of the clips than from advertising in the feed or the daily changing so-called stories of the users. As a result, the more short videos spread, the more they crowded out more lucrative formats for meta, Zuckerberg conceded. Meta’s average revenue per ad fell 14 percent. In the same quarter last year, he jumped 47 percent.

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Meta will still rely on “reels” because they increase user activity on the platform and over time bring in similar amounts of money as other formats, Zuckerberg said. However, Meta admits that it could be years before that happens. Currently, “Reels” advertising is on track to make $1 billion annually.

Meta also announced a change in leadership on Wednesday. The previous CFO Wehner is to take over the newly created position of strategy chief in November. Susan Li will be the new chief financial officer. A gap had opened up on the executive floor because Sandberg had announced her retirement. She was regarded as Zuckerberg’s right-hand man and an architect of Facebook’s business model.

US antitrust authorities want to ban meta purchases from VR specialists

US competition watchdogs are targeting the strong market position of the Facebook group Meta in the virtual reality business for the first time. The FTC went to court to prevent Meta from buying a developer company.

With virtual reality, users can immerse themselves in digital worlds with special glasses on their heads. Facebook founder Mark Zuckerberg got into the business early on when he bought VR glasses pioneer Oculus in 2014. The company is now a leading player in the market for glasses and a platform for VR content. Zuckerberg also announced the goal of establishing a virtual world – the “Metaverse” – as a future computing platform. The change in the company name from Facebook to Meta also has something to do with this.

The company Within Unlimited, which Meta wants to buy, is behind a VR fitness app called “Supernatural”. The FTC argues that Meta with its “VR empire” wants to occupy this market by buying it out instead of competing for it with its own offering.

According to the lawsuit filed on Wednesday, the takeover could lead to less competition and potentially higher prices. “And Meta would be one step closer to the ultimate goal of owning the entire ‘Metaverse’.” Meta already owns the VR app “Beat Saber”, which is also designed for movement. The group has bought several VR specialists in recent years. According to a media report, Meta wants to spend more than 400 million dollars on the purchase of Within that was announced last fall.

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Meta countered that the FTC’s lawsuit was based on “ideology and speculation” rather than facts. The accusation that the takeover would be anti-competitive was “unbelievable,” according to a blog entry. Among other things, “Beat Saber” and “Supernatural” are fundamentally different, argued Meta.

Under its new boss Lina Khan, the FTC is taking a tougher stance against the big tech companies, which have long benefited from rather lax competition regulation in the United States.

Investors punish Meta’s sales decline

The first decline in sales of the Facebook, Instagram and Whatsapp mother Meta Platforms caused disillusionment on the stock exchange on Thursday. The shares, which had already been under downward pressure for months, lost 5.22 percent to $160.72 and were not far from another low since April 2020. The comprehensive tech index NASDAQ Composite was only slightly in the red.

Business figures for the second quarter were better, but the outlook for the third quarter was weaker, wrote analyst Douglas Anmuth from Bank JPMorgan. The general economy plays the biggest role, but not the only one. The expert cites the competition from the video portal provider TikTok as a further reason as a brake for Meta.

Analyst Thomas Hofmann from Landesbank Baden-Württemberg listed a whole range of risks for Meta’s social media business: Apple’s data protection guidelines, the sensitivity of user data, possible regulatory requirements, taxation and a disappointing development in user numbers could affect the group make life increasingly difficult.

At least some of these risks may already be priced into Meta’s stock price. After all, the papers have lost almost 60 percent since the record high in September last year at a good 384 dollars. However, there is still a long way to go before the stock’s historic low of under $18 after its IPO in 2012.

Editorial office finanzen.net / dpa-AFX

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