We seem to have entered ‘economic downturn’

Meta Platforms CEO Mark Zuckerberg said on the company’s second-quarter earnings call Wednesday that the economy seems to be in a downturn that will hurt digital advertising, so the Facebook parent company must do more with less.

The comments came after Meta, which runs advertising-dependent social networks Facebook and Instagram, disclosed second-quarter earnings and revenue that came in below analysts’ estimates. Social media rivals Snap and Twitter reported lower-than-expected quarterly results last week.

“Engagement trends on Facebook have generally been stronger than we anticipated and strong Reels growth is continuing to drive engagement across Facebook and Instagram,” Zuckerberg said on a conference call with analysts. “That said, we seem to have entered an economic downturn that will have a broad impact on the digital advertising business. It’s always hard to predict how deep or how long these cycles will be, but I’d say that the situation seems worse than it did a quarter ago.”

Earlier on Wednesday the U.S. Federal Reserve raised its benchmark rate by 75 basis points, and Fed Chair Jerome Powell said consumer spending growth has slowed meaningfully. But he said he did not believe that U.S. is in a recession now, and the National Bureau of Economic Research has not ruled on the timing of a possible recession.

That hasn’t stopped Meta, Google parent Alphabet, and other technology companies from reducing hiring plans.

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

In May the company told media outlets that it was cutting back on slowing down headcount growth. On Wednesday’s conference call, Zuckerberg elaborated.

“Our plan is to steadily reduce headcount growth over the next year,” he said. Many teams are going to shrink so that we can shift energy to other areas inside the company and I want to give our leaders the ability to decide within their teams where to double down, where to backfill attrition and where to restructure teams.”

Sheryl Sandberg, Facebook’s outgoing operating chief, said during Wednesday’s call that Russia’s invasion of Ukraine and the normalization of e-commerce after an explosion during Covid continue to dampen the company’s growth, and inflation and uncertainty about a recession add to the complexity.

“Despite the current challenges, I’m very confident for the long term,” Sandberg said. “We’re facing a cyclical downturn but over the long run digital ad market will continue to grow. Advertisers will go where they get the highest return on investment and ability to drive their business. We believe we will continue to show up very favorably compared to other advertising options.”

The difficult economic climate is factored in to Meta’s third-quarter guidance, said David Wehner, the company’s outgoing finance chief.

Meta shares dropped 4% after hours following the call.

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