Meta’s Reels revenue boosted by AI, narrowing in on TikTok.
Meta's Reels revenue boosted by AI, narrowing in on TikTok.
Reels: Meta’s Rising Star
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In 2020, Meta Platforms launched Reels, its answer to the viral short-form video app TikTok. Initially dismissed as just another imitation by Meta, Reels has defied expectations and is rapidly gaining popularity among users and advertisers. This unexpected success speaks not only to the growing capabilities of Meta’s recommendation software but also to the company’s ability to create a monetizable base.
Meta’s Head of Online Sales, Operations, and Partnerships, Justin Osofsky, explained that Reels leverages their discovery engines to deliver personalized video recommendations to users. The number of Reels video plays on Facebook and Instagram has soared to over 200 billion per day, a significant increase from 140 billion in the previous fall. This growth shows Reels closing the gap with TikTok, whose daily figures remain undisclosed.
This surge in popularity has also translated into financial success for Meta. Reels’ annual revenue run rate has skyrocketed to $10 billion, up from $3 billion last fall and just $1 billion the previous summer. During a conference call with analysts, Meta CEO Mark Zuckerberg revealed that Reels’ revenue is now comparable to TikTok’s business from the previous year, estimated at $9.9 billion in worldwide ad revenue. Research firm Insider Intelligence predicts that TikTok’s global ad revenue for this year will reach $13.2 billion.
One important factor contributing to Reels’ growth is Meta’s ad platform. The platform’s seamless integration allows advertisers to place their promotions on Reels with ease. Debra Aho Williamson, a principal analyst at Insider Intelligence, explains that it’s “as easy as checking a box.” As a result, over three-quarters of Meta’s advertisers are already using Reels for their ad campaigns.
While the success of Reels is undeniable, Meta faced concerns from investors about the potential impact on ad sales in other areas of their apps, such as the News Feed. However, Meta remains confident that advertisers will embrace the format over time, just as they did with previous transitions, such as the shift from desktop to mobile and from Feed to Stories.
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During the recent earnings call, Meta’s Chief Financial Officer, Susan Li, acknowledged that Reels currently generates less revenue compared to Meta’s Stories and Feed features, primarily due to the slower scroll speed of video content. Nevertheless, the company expects Reels to continue growing and becoming a significant revenue generator.
Despite Reels’ impressive growth, TikTok still holds the crown for the most time spent on social media apps. According to estimates by Insider Intelligence, the average U.S. user spends 53.8 minutes per day on TikTok, whereas YouTube, Instagram, and Facebook follow with 48.7 minutes, 33.1 minutes, and 30.9 minutes, respectively.
Reels has undoubtedly emerged as Meta’s rising star, defying initial skepticism and carving out a substantial presence in the competitive short-form video market. With its improving recommendation software and growing user base, Reels presents a vast opportunity for Meta to further monetize its platform and solidify its position in the social media landscape.
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