Daily Brief: Meta Needs Advertisers, But Advertisers Don’t Want Meta

Daily Brief: Meta Needs Advertisers, But Advertisers Don’t Want Meta

over 1 year ago3 mins

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Meta posted a steeper-than-expected drop in both quarterly revenue and profit late on Wednesday.

What does this mean?

After bleak results from fellow social media giants Snap and Twitter late last week, investors were worried that the same fate awaited Meta. They were right to be nervous: Meta’s monthly active users might’ve risen marginally across all its platforms from the same time in 2021, but more eyeballs isn’t translating into more advertising revenue. That’ll happen as companies slash budgets left, right, and center, and as Apple’s privacy updates continue to impair Meta’s ability to target the right products to the right users. That might be why the company’s profit and revenue came as such a disappointment, and why it gave a much weaker-than-expected outlook for this quarter too.

Meta sales

Why should I care?

Zooming in: Meta sees you.

At least Meta is working hard to boost growth. First, it said this week that it would be introducing music revenue-sharing on Facebook, which will allow creators to make money from videos that use licensed music. That should lure more users to the platform and help it compete with Chinese nemesis TikTok. And second, the company is reportedly thinking about buying eye-tracking technology firm AdHawk Microsystems. That would allow it to improve its VR headset offering, which will be vital if it’s going to make good on its push into the metaverse.

The bigger picture: The Fed nears the tipping point.

Meta warned investors about “macroeconomic uncertainty” ahead, and it has a point: the Federal Reserve (the Fed) hiked interest rates by 0.75% for the second-straight time on Wednesday. That takes them close to the “long-run neutral rate” – a level estimated to neither stimulate nor restrict economic growth. But since the Fed has already indicated that it won’t stop hiking until inflation is inarguably on the way back down, it might not be long before that neutral rate is a distant memory.

Fed rate hike
Source: The New York Times

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Mining Giant Rio Tinto Is In A Slump

Rio Tinto image

Rio Tinto – the world’s second-biggest miner – reported on Wednesday that its profit dropped off a cliff in the first half of the year.

What does this mean?

Rio Tinto was in an enviable position last year, with metal prices on the up and up as manufacturers returned to full strength. But now that a global recession is rearing its ugly head, they’ve come tumbling back down: the price of iron ore – the steelmaking ingredient that Rio Tinto relies on to make most of its money – has halved since this time last year. Rio’s mining costs have risen too, with the prices of everything from diesel to explosives going through the roof. All this came to a head in the first half of the year, when Rio’s profit dropped 29% from the record haul of the same time in 2021.

Rio Tinto stock
Source: Google Finance

Why should I care?

For markets: Will Rio go shopping?

This was such a blow, in fact, that Rio said it would pay out “just” 50% of its profits to its shareholders in the form of dividends – down from the 65% average of the past three years. It’s still the miner’s second-biggest half-year payout on record, mind you, and it’ll leave Rio with plenty of spare cash on its balance sheet. Some analysts even think it’ll start buying up other, less financially secure companies in the sector, which isn’t outlandish: the company showed it’s keen to double down on the green energy transition by buying a lithium mine last year, as well as offering to buy out copper producer Turquoise Hill Resources entirely.

The bigger picture: It’s only getting tougher.

Then again, Rio might want to hold onto that nest egg. For one thing, the economic slowdown is only expected to get worse, with the International Monetary Fund this week slashing its 2022 global growth forecast for a third time to 3.2%. And for another, Goldman Sachs thinks the supply of Rio’s all-important iron ore will overtake demand in the second half of this year.

IMF outlook
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