Meta’s Reels Revenue Gets AI Boost to Close in on TikTok, Set to Jump to $10 Billion This Year

Reels, Meta Platforms' answer to viral short-form video app TikTok, elicited eyerolls when it launched in 2020 and was regarded as yet another example of Meta copying a popular rival.

But on Wednesday, Meta revealed numbers that show Reels videos are growing rapidly among both users and advertisers and are quickly catching up to the ByteDance-owned TikTok app that is beloved by young users and has reshaped the social media landscape.

Meta says the rags-to-riches growth of Reels, which are viewable on both Facebook and Instagram, speaks in part to the company's improving recommendation software, long the Chinese-owned rival's strong point.

"We can show Reels that we think you're interested in based on our discovery engines," Justin Osofsky, Meta's head of online sales, operations and partnerships, said in an interview on Thursday.

The number of Reels video plays on Facebook and Instagram now top 200 billion per day, up from 140 billion last fall. TikTok did not respond immediately to a request to provide its daily figures.

The growth of Reels "creates a base that you have the opportunity to further monetize," Osofsky said.

Though Meta has invested in artificial intelligence for years, it is now moving to the forefront of its business to improve content recommendations and ads across the company's services, he added.

Reels' annual revenue run rate has jumped to $10 billion (roughly Rs. 82,287 crore), up from around $3 billion (roughly Rs. 24,688 crore) as of last fall and $1 billion (roughly Rs. 8,229 crore) last summer, Meta CEO Mark Zuckerberg said during a conference call with analysts following its second quarter results.

That means Reels is about the size of TikTok's business as of last year, when it pulled in $9.9 billion (roughly Rs. 81,472 crore) in worldwide ad revenue, according to estimates from research firm Insider Intelligence, which forecast $13.2 billion (roughly Rs. 1,08,630 crore) in global ad revenue this year.

One reason for Reels' growth is that Meta's ad platform makes it seamless for advertisers to place their promotions on the feature, said Debra Aho Williamson, a principal analyst at Insider Intelligence.

"It's as easy as checking a box," she said.

More than three-quarters of Meta's advertisers are placing ads on Reels, said Susan Li, Meta's chief financial officer.

Throughout 2022, Meta executives fielded questions from investors about whether fast-growing Reels consumption was actually hurting ad sales by taking users' time away from higher-earning areas of its apps, like the News Feed.

There were relatively few ads in Reels at that point, but Zuckerberg said he expected advertisers to embrace the format over time, as they had with previous transitions from desktop to mobile and from Feed to Stories, Meta's Snapchat-like format.

On the earnings call on Wednesday, Li said the company expected Reels would continue earning less money than the ads Meta generates from its Stories and Feed features, "since people scroll more slowly through video content."

TikTok and its famous content recommendation algorithm remains the leader when it comes to time spent on social media apps. The average US user spends 53.8 minutes per day on TikTok, versus 48.7 minutes on YouTube, 33.1 minutes on Instagram and 30.9 minutes on Facebook, according to Insider Intelligence estimates.

© Thomson Reuters 2023

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