Tiktok Will Be Challenged By Meta's Short Video Reels

Analysts are confident that Reels will be able to compete with TikTok with its engaging short-form videos.

‍

As Meta Platforms announced following its fourth-quarter earnings call, it expects Reels will become revenue neutral by the end of the year or by the beginning of 2024, after once being an albatross on the company.

‍

In the last six months, Meta reported that Facebook's monetization efficiency has doubled. In the last six months alone, Facebook and Instagram video plays and re-sharing have more than doubled.

‍

As Meta's analyst conference call with analysts unfolded, it was evident that the company has shifted its focus from growth at all costs to operational efficiency. As a result of the stock's surge and revenue that beat analyst estimates, investors were able to soothe concerns about Facebook's metaverse venture as much as 29% at one point on Thursday. The social network was still on track to post its biggest one-day gain since 2013 at the close of trading.

‍

Reels are expected to improve Facebook's efficiency in the future, according to some analysts.

‍

As a result of improved reels monetization and easier comps, Canaccord Genuity's Maria Ripps expects revenue growth to accelerate throughout 2017.

‍

Reducing tensions on TikTok

Several analysts argue that Reels will overtake TikTok, the short-form video leader that is under increasing pressure due to calls for a nationwide ban. The Chinese-owned company was banned from gaining access to government data and protecting personal data late last year after Congress banned its use on government devices.

‍

In a note to clients Thursday, Bernstein's Mark Shmulik said that improvements in Reels engagement demonstrate Meta's success in battling TikTok.

‍

Investing in artificial intelligence and improving Reels engagement trends are among ways to temper the threat from TikTok, according to JPMorgan analyst Doug Anmuth.

‍

The House of Representatives under Republican control may be more likely to scrutinize TikTok, as Mizuho's James Lee noted.

‍

We continue to like the FY23 setup given the limited revenue downside, the increased scrutiny surrounding TikTok, and the room for cost efficiency,” Lee said on Wednesday.

‍

Despite Reels' best efforts, it may not gain market share against all analysts. According to Atlantic Equities' James Cordwell, "growth will be limited by share losses to TikTok, and macro pressures will still pose a risk."

‍

Ignoring a Costly Metaverse Bet

Through Reality Labs, Meta invested $13.7 billion into the metaverse in 2022, and more money is expected to be invested in 2023.

‍

The investment in Reality Labs has attracted some analysts and investors.

‍

“As the Family of Apps initiatives improve, investors will be more willing to explore less well-defined Reality Labs opportunities,” said Michael Morris of Guggenheim.

‍

A bullish Barton Crockett upgraded Rosenblatt's investment opinion for the metaverse business to a buy rating on Thursday, saying it appears unlikely that its losses will increase rapidly or "hockey stick" in the future.

‍

Despite the fact that Facebook Reality Labs has become more transparent, we don't think it's a stretch to reach 1 billion metaverse users, said Stifel’s Mark Kelley. "We don't think you have to believe in the metaverse story to like the stock — we think we like the increased transparency around it."