Meta Platforms Poised to Post Earnings Drop From Digital-Ad Woes

Growing competition from rival TikTok, the tough economic climate and the fallout from

Apple Inc.’s

AAPL -1.45%

ad-tracking changes in 2021 have weighed on the digital ad market, denting results for Meta and others.

Snap Inc.

SNAP -13.39%

on Tuesday predicted a plunge of as much as 10% in sales for the current quarter. 

Meta’s shares fell by about two-thirds last year, erasing more than $600 billion in market value. The stock has rebounded somewhat this year, rising about 24% through Tuesday’s close. The company last year warned that Apple’s policy changes alone would translate to $10 billion in lost sales in 2022. 

Wall Street expects Meta to post a net profit of $6 billion for the fourth quarter. That would represent a roughly 41% decline from a year earlier though snap a streak of three quarters in which the company’s bottom line has retreated from the prior quarter—something Meta hadn’t experienced in a decade. 

In an effort to combat TikTok and make up for the loss of revenue caused by Apple’s changes, Meta has been investing heavily in artificial-intelligence tools aimed at improving its ad-targeting systems and making better recommendations for users of Reels, its short-video feature. 

The company’s push to improve its AI technology has started to yield results. During an internal talk in October, Meta Chief Executive

Mark Zuckerberg

and the company’s chief marketing officer and vice president of analytics,

Alex Schultz,

credited improvements to both Facebook’s algorithms and the computing systems on which they run with a 20% gain in time spent in Reels consumption.

Meta’s efforts to revitalize its business come with a trump card, Facebook’s massive user base. Analysts expect the company to disclose that Facebook’s daily active user base has continued growing and increased to 1.99 billion users, up from 1.98 billion three months ago.

Tech Layoffs Across the Industry: Amazon, Salesforce and More Cut Staff

Mr. Zuckerberg in 2021 renamed the company to reflect a focus on the so-called metaverse, a more immersive version of the internet where he said users will work and play. Meta’s Reality Labs, the division tasked with building the hardware and software underpinning that effort, is expected to report revenue of $711 million for the quarter, a decline of 18.9% from a year earlier. The unit, which makes Meta’s Quest virtual-reality headsets, is expected to post an operating loss of $4.4 billion.

Horizon Worlds, the company’s flagship metaverse offering for consumers, fell short of internal performance expectations, according to internal documents from October obtained by the Journal. The company had initially set a goal of reaching 500,000 monthly active users for the service by the end of 2022, but the tally in October was less than 200,000, the documents showed.

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Write to Salvador Rodriguez at salvador.rodriguez@wsj.com