A Promising Turnaround for Reels: Monetization on the Rise

by webmaster

Meta Platform’s short video service, Reels, has long struggled with monetization compared to other social media platforms within the company. However, according to Citi analyst Ronald Josey, this may soon change. In a recent note, Josey suggests that Reels became “revenue accretive” in the fourth quarter, thanks to a gradual increase in ad load.

According to his analysis, ad loads have expanded to 19.1% during this period, a growth of 20 basis points from the third quarter. This means that users are now seeing ads more frequently. In fact, ad load for January is tracking even higher, at 19.3%. On average, ads appear as the fourth Reel watched, and 95% of the time they show up before the seventh video.

In December, 84% of Sponsored Reels—ads—were from national brands. Notably, about 40% of these Sponsored Reels came from tech and financial companies. Since its launch, Reels has driven a 40% increase in time spent on Instagram and daily plays have consistently exceeded 200 billion.

Josey estimates that Reels revenue for this year reached $18 billion, accounting for approximately 12% of overall Meta revenue. This surpasses the $10 billion run-rate disclosed by Meta for the second quarter of 2023.

The monetization progress of Reels will be among the key topics addressed when Meta reports its financial results for the fourth quarter on Feb. 2. Josey anticipates that the company will exceed Street estimates for both revenue and profits, benefiting from a stronger online advertising environment and recent ad innovations.

For the quarter, Josey projects ad revenue of $39.5 billion, which falls towards the upper end of Meta’s guidance range of $36.5 billion to $40 billion.

On Tuesday, Meta stock increased by 0.7% to reach $384.26, and the shares have risen by 8.6% since the beginning of the year.

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