Meta Platforms (NASDAQ: META) shares are down about 5% this week following the Q2 report that yielded lower-than-expected profit and revenue.

Facebook’s parent company also gave an unexpectedly bleak sales projection, indicating that Meta will see a decrease in year-over-year sales for two straight quarters.

How Did Meta Perform in Q2?

Meta reported Q2 revenue of $28.82 billion missing on consensus estimate of $28.94 billion, according to Refinitiv. This marks a decrease of roughly 1% from the same period last year. Adjusted earnings per share (EPS) came in at $2.46, also falling short of the consensus estimates of $2.59 per share.

StreetAccount’s data shows that Meta missed the consensus estimates on both active and daily active users’ numbers as well.

Both Apple’s iOS privacy upgrade from a year ago, which restricted Meta’s ability to follow users, and the worsening economy, have led to nearly a 50% drop in the company’s market value, highlighting investor anxiety regarding Meta’s growth sustainability.

Meta’s bleak third-quarter projections see the revenue in the $26 billion to $28.5 billion range, falling short of the $30.5 billion average analyst projection, which amounts to a projected decrease of between 2 and 11 percent compared to the year before.

The company explained its third-quarter projections by stating that “continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty.”

Meta reported that the company now has 83,553 employees, up 32% from a year ago, but Mark Zuckerberg, Meta CEO, informed analysts of his plan to battle economic slowdown by curtailing personnel expansion over the coming year.

“This is a period that demands more intensity and I expect us to get more done with fewer resources,” Zuckerberg said on a conference call with analysts.

TikTok Competition Increasing

Meta’s second-quarter results mean that another online business is struggling to meet consensus estimates in this quarter, just as well as Snap and Twitter. Alphabet and Microsoft also failed to meet analysts’ expectations, but their shares soared regardless on better-than-feared results.

Although Zuckerberg stated that Facebook’s Instagram Reels service has generated $1 billion in annualized revenue, the company is still struggling to compete with the continuous expansion of the short clip app TikTok, which is luring users away from them. Reels do not, however, generate income as effectively as Instagram Stories and the main news feed.

“In the near term, the faster that Reels grows, the more revenue that actually displaces from higher monetizing” products, Zuckerberg said.

Meta’s overall spending will be between $85 billion and $88 billion in 2022, down from earlier projections of $87 billion to $92 billion.

The Reality Labs division of Meta, which is in charge of creating the metaverse and associated virtual reality and augmented reality technologies, is taking a sizable piece of the spending budget. The business had sales of $452 million but a $2.8 billion loss in the second quarter, and according to Meta, it is anticipated to have even lower revenues in the third quarter.

David Wehner, Facebook’s chief financial officer, will now be in charge of corporate growth as the business struggles to meet Wall Street’s demands, the company announced. Susan Li, currently the vice president of finance for the business, is being promoted to CFO by Meta.

She will replace Sheryl Sandberg, who will be leaving the company after 14 years.

“Many of the macro factors having an impact on our revenue are continuations of things we have seen in previous quarters, such as a continued impact of the war in Ukraine and the normalization of e-commerce after the pandemic peak,“ Sheryl Sandberg said in her last earnings call for the company.

Summary

Meta shares are down this week after the company reported yet another disappointing quarter with investors now seriously worried about prospects facing the tech behemoth.