One long-standing issue with
Meta
Platform’s short video service, Reels, is it hasn’t monetized as well as other parts of the company’s social media platforms.
In other words, users shifting some of their time to Reels from the news feed and stories on both Instagram and Faceook was costing the company money.
But Citi analyst Ronald Josey says that might be changing. He writes in a Tuesday note that Reels likely became “revenue accretive” in the fourth quarter, with ad load on Reels gradually increasing.
Josey asserts that ad loads expanded to 19.1% in the period, up 20 basis points from the third quarter—meaning users are seeing ads a little more frequently. (He adds that month-to-date ad load in January is tracking a little higher still, at 19.3%.)
His analysis finds that ads, on average, show up as the fourth Reel watched, and before the seventh video 95% of the time. In December, 84% of Sponsored Reels—which is to say, advertising —were from national brands, he adds. About 40% of Sponsored Reels, he reports, are from tech and financial companies.
Reels have driven a 40% increase in time spent on Instagram since launch, and that daily plays have been running above 200 billion, he says. Josey estimates that Reels revenue reached $18 billion this year, or about 12% of overall Meta revenue, compared with the $10 billion run-rate that Meta disclosed for the 2023 second quarter.
Reels monetization will be one of a number of topics Meta will address when the company reports financial results for the fourth quarter after the close of trading on Feb. 2. The Citi analyst expects the company will beat Street estimates for both revenue and profits for the quarter, “as the service likely benefited from a strengthening online advertising environment and ads innovation released throughout the quarter.”
Josey projects ad revenue for the quarter of $39.5 billion, toward the high end of the company’s guidance range of $36.5 billion to $40 billion.
Meta stock was up 0.7% to $384.26 on Tuesday, and the shares have risen 8.6% this year so far.
Write to Eric J. Savitz at [email protected]
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