Meta/Alphabet: falling ad sales will ramp up pressure on side hustles
Google and Facebook were so desperate to show they were not just online ad businesses that they changed their names. Meta (née Facebook) and Alphabet (née Google) have now suffered quarterly slumps in digital ad sales precipitated by a global economic slowdown. Unfortunately, the supposedly transformative side hustles are taking up none of the slack
Facebook boss Mark Zuckerberg believes the future of technology resides in the metaverse, an all-encompassing but vaguely defined digital environment. Google has a segment simply called “Other Bets” which includes such ventures as self-driving cars. Each of these areas lost both companies more than a billion dollars alone in the past quarter.
It is just as well that ad sales still produced solid profits, albeit much weaker than in gangbusters 2021. External shareholders have been willing to tolerate subsidies for the grand schemes of founders up until now. With fewer riches to go around, investors are set to become more critical.
However, the capital allocation dilemmas of Meta and Alphabet still beat the predicaments of Twitter and Snap. These social platforms have neither capital nor compelling side ventures to allocate it to.
Facebook’s ad business generated operating profit of $11bn in the quarter, down $4bn from a year ago and about half of Google’s second-quarter result. The company is tightening its belt while aiming to go all-in on the metaverse.
Snap and Twitter both recorded operating losses. Shares in photo-posting network Snap are off nearly 90 per cent from their 2021 peak, reflecting laggard status. Twitter’s best hope is to beat remorseful would-be buyer Elon Musk in court and makes its finances his problem.
Facebook shares trade at less than half last year’s peak. Were it not for Zuckerberg’s aspirations, external shareholders would be happy to collect payouts from this maturing cash cow.
In the years before the tech bubble burst, Facebook and Google could have profitably spun off their vanity projects. Instead, side ventures are gobbling up plateauing profits from the core businesses. This tension can only grow.
If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.