Be Afraid, Hollywood. Be Very Afraid. Facebook Results are a Harbinger for Media

The slump in revenue -- the first-ever drop -- means advertising sales are about to tear through entertainment studios. And traders are nervous.

Photo by Deeksha Pahariya on Unsplash

Hollywood should be very nervous about Facebook‘s first-ever drop in revenue in Q2 earnings on Wednesday, a painful benchmark brought on by a steep drop-off in advertising sales as the economy teeters toward a recession.

And studio chiefs should be really nervous about the social media giant’s warning on Wednesday that revenue through September will wane even further, somewhere in the range of $26-$28.5 billion, missing the $30 billion-plus that Wall Street was projecting. There’s a confluence of reasons: consumer are in belt-tightening mode, companies are reigning in advertising spend, and a strong dollar has eroded the value of overseas sales.

Those are not exactly economic conditions big entertainment companies, who depend on advertisers to hawk everything from luxury cars to campaign promises, want to hear at a point where they’re trying to convince investors that ad-tiered streaming options will grow subscribers. It throws into chaos expectations that streaming ad spending was supposed to surge nearly 40% this year to $21.2 billion — double what was reported in 2020, according to NewFronts sponsor IAB.

The parent company of Facebook and Instagram reported second-quarter earnings of $6.69 billion, or $2.46 a share, down from $3.61 a share last year, on revenue of $28.82 billion, down from $29.08 billion a year ago. Both results missed Wall Street projections for $2.54 a share and revenue of $28.9 billion, according to Yahoo Finance.