As the corporation battles over spending in its Metaverse division, the deterioration of its core ad business, and other issues, Meta, the parent company of Facebook, saw a fall in revenues and profits for the second consecutive quarter. Reels, Meta's short-video service that was introduced to compete with TikTok, performed well, which was one of the highlights of Meta's Q3 2022 earnings.
Reels is currently Facebook's family of applications and services' fastest-growing format, reaching a $3 billion annual revenue run rate (ARR) in Q3 2022, the company said on Wednesday during its earnings call. Reels are now played every day on Facebook and Instagram in excess of 140 billion times. That is a 50% increase from six months prior. Reels increase the amount of time spent using our apps. The trends are positive, and we think we're overtaking rivals like TikTok in terms of time spent, according to Mark Zuckerberg, CEO of Meta.
"The growth of short-form video creates near-term challenges since Reels doesn't monetize at the rate of Feed or Stories yet." said Zuckerberg. That implies that as Reels expands, we are displacing income from more lucrative platforms. Despite our accomplishments, we've decided to make this transition even though it would result in a more than $500 million quarterly sales headwind. But over the following 12 to 18 months, we anticipate reaching a more neutral position," he continued.
He said, though, that the social network had a history of new forms lagging behind older ones. They have always had this dynamic where we focused on raising engagement and growing demand for the product whenever they had a new format, like when added Stories or even before that when they were predominantly on desktop and transitioned to mobile feed. The monetization effectiveness of the new format, however, lagged behind the News Feed or mobile News Feed compared to Stories for a while while that was building up, according to Zuckerberg.
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 added that over the past two quarters, Facebook Reels watch time increased by 15% as a result of a single AI development in scaling its recommendation models. Instagram and Facebook can recommend many kinds of material besides Reels thanks to the AI-driven discovery engine, including images, text, links, communities, and both short- and long-form films. According to Susan Li, vice president of finance at Meta, " We expect that there will be additional Watch time improvements coming from that work."