Instagram and Facebook Reels Could Be Bigger Than TikTok by Next Year

There is no doubt that Metaplatforms (META 0.61%) CEO Mark Zuckerberg is focused on TikTok. He mentioned the company by name five times during the company’s fourth quarter earnings call earlier this year. However, anything focused on short video can pay off.

The company’s Reels product, available on Facebook and Instagram, is expected to outperform the industry pioneer by next year, according to Truist analyst Youssef Squali. He sees Meta’s Reels generating more revenue than TikTok (excluding China) by next year.

A massive change

There is already a massive shift from time spent on Instagram to Reels. The feature accounts for more than 20% of time spent on the platform, Zuckerberg shared during Meta’s first quarter earnings call. Video, in all its forms, accounts for 50% of the time on Facebook, he said.

But Meta’s ability to monetize Reels has not followed so quickly. As Meta catches up by creating new ad technology to maximize the value of the new format, it competes with TikTok.

The Chinese company is expected to generate $5.96 billion in revenue in the United States alone, according to eMarketer analysts. The UK – where TikTok continues to grow rapidly – ​​will add another $1.04 billion. Squali estimates that Reels will generate $5.6 billion in revenue for Facebook in the United States this year.

As Facebook strives to increase engagement on Reels and improve monetization, it should see its revenue surpass that of TikTok. If Reels can generate average ad revenue per minute of engagement equal to remaining time spent on Instagram, that would translate to about $8 billion in U.S. revenue next year, according to eMarketer estimates.

That said, Reels is somewhat cannibalistic for stories and feeds in the Facebook and Instagram apps. “Reels takes time away from other surfaces, but we think that adds to the overall commitment,” Chief Financial Officer David Wehner told analysts on the first quarter earnings call. While improved engagement and monetization should help offset headwinds elsewhere in the advertising industry, this isn’t pure growth.

That said, even for a company with $120 billion in annual revenue, a $10 billion product built in three years is still impressive.

The long-term potential of Reels

What makes Reels a great long-term investment for Meta are the AI ​​investments that come with it. TikTok has become extremely popular thanks to its recommendation engine. Its “For You” section – which the app opens to by default – can suck you in and keep you scrolling forever. There is no need to explicitly follow accounts.

Meta builds on this concept, improving its recommendation engine for Reels over time to become competitive with TikTok. What he discovered, however, is that he can apply this same AI engine to his stream. Now it surfaces content in News Feed from accounts that users don’t follow, and it drives increased engagement.

Beyond that, Meta can use the same AI to show more relevant ads. This becomes especially important in the face of signal loss due to iOS changes that went into effect last fall. Meta is working to improve targeting as well as measurement, and the AI ​​investments it’s making for Reels should improve its ability to surface the ads most likely to engage users.

While Reels could grow rapidly for Meta, potentially overtaking TikTok by next year, that’s still only part of the business. That said, the broader impact on Meta’s social media activities could be even greater.

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