Meta’s fastest-growing format Reels hits $3 billion annual revenue run rate 

 

Facebook parent Meta’s revenues and profits declined for the second successive quarter as the company continues to battle over expenditure in its Metaverse unit, weakening of its core ad business, and other challenges. Among the bright spots in Meta’s Q3 2022 earnings was the performance of Reels — its short-video offering that was launched to take on TikTok.

Reels is now the fastest-growing format across Facebook’s family of apps and services, hitting a $3 billion annual revenue run rate (ARR) in Q3 2022, the company revealed its earnings call on Wednesday. “There are now more than 140 billion Reels played across Facebook and Instagram each day. That's a 50 per cent increase from six months ago.  Reels are incremental to time spent on our apps. The trends look good here, and we believe that we're gaining time-spent share on competitors like TikTok,” Meta CEO Mark Zuckerberg shared. 

On Instagram alone, users reshare Reels 1 billion times a day via direct messages. In the last quarter, Instagram Reels had crossed $1 billion annual revenue run rate. However, monetisation still remains a challenge for the fairly new format, and lags that of Stories and Feed. 

Zuckerberg explained, “The growth of short-form video creates near-term challenges since Reels doesn't monetize at the rate of Feed or Stories yet. That means as Reels grows, we're displacing revenue from higher-monetizing surfaces… Even with the progress we've made, we're still choosing to take a more than $500 million quarterly revenue headwind with this shift. But we expect to get to a more neutral place over the next 12-18 months,” he added.

He, however, clarified that new formats lagging old formats was not new for the social network. “Any time we've had a new format, like when we added Stories or even before that when we were primarily on desktop and we shifted to mobile feed, we had this dynamic where we focused on increasing engagement and growing demand for the product. But while that was happening, monetization efficiency for the new format lagged behind the News Feed or mobile News Feed compared to Stories for some period while that was ramping up,” Zuckerberg explained.

While Meta continues to bridge the monetisation gap between Reels and Feed and Stories, it believes that will remain a challenge in the near term. “It’s going to take time before Reels becomes a tailwind to revenue,” said David Wehner, CFO of Meta Platforms. 

Meta further shared that a single AI advancement in scaling its recommendations models led to a 15 per cent increase in watch time for Facebook Reels in the last two quarters. The AI-led discovery engine allows Instagram And Facebook to recommend all types of content beyond Reels as well, including photos, text, links, communities, short and long-form videos. “We expect that there will be additional Watch time improvements coming from that work,” said Susan Li, VP of Finance at Meta. 

Even though engagement growth has been steady on Reels, which have enabled people to discover new interests and creators, and also connect with businesses, Zuckerberg reckons “closing this gap” with other formats is “a high priority” for the company now.

Marne Levine, Chief Business Officer, Meta Platforms, said, “What we're focused on is making sure that businesses get a strong ROI on Reels. And one example that shows that we're delivering on this in terms of our investments is Corkcicle, which is the insulated drinkware brand that added Reels to its business-as-usual strategy and saw a 34 per cent higher return on ad spend and a 34 per cent higher sales.”

Meta shares tanked 14 per cent on Wednesday, eroding nearly $40 billion off its market cap in a day. 

Also read: Meta's revenue drops 4% to $27.71 bn amid ad slump, metaverse concerns

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