Key points:
- As slowing user growth worried investors, Meta were forced to re-think monetization strategies
- Reels, a short-video based feature akin to TikTok, hopes to build routes to monetization
- UBS analyst argues that Reels could facilitate a 6% revenue headwind in the first half of 2022
After the biggest valuation drop in market history – more than $220B – Meta Platforms (NASDAQ: FB), the company behind Facebook and Instagram, wasn’t sitting in the best of lights. The cliff-edge drop came into play after the company announced earnings that showed a clear-cut depression in user growth. The rest was history.
Revenue strategies have also been a central concern for the social media company, with changes to data security protocols impacting direct advertising revenue. The company’s change to ‘Meta Platforms’ appears indicative of a shift towards the metaverse, yet we are yet to see this angle in fruition.
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In late February, Meta released the latest feature for Facebook users; Reelz. The short-video format, akin to rising star TikTok, should keep users on the platform for longer and hence should drive avenues to monetization. The move follows the growing trend of video consumption across various social platforms in the last few years.
The company has added new features and is working on cross-platform integration for Facebook and Instagram. More importantly, for investors, Meta is currency building direct monetization options for Facebook Reelz through fan support and share of advertising revenue; tests are well underway across the US and Canada.
UBS analyst Lloyd Walmsley made a few comments on Meta stock this morning. Walmsley maintains a Buy rating and a $280 price target for the stock, regarding that Reels should drive a “meaningful bump” and henceforth should lead to further monetization at scale. He argues that the push of Reels could drive a 6% revenue headwind in FH22, but further scaling could increase this to an 8%-15% tailwind.
Earlier in the year, the social giant appeared a little lost, bemused at some sort of crossroads. Now, Meta seems to have a better grip on monetization; whether this will be enough to subdue slowing user growth is still to be proved.