JMP Securities analyst Andrew Boone reiterated Meta Platforms Inc META with a Market Outperform and a $380 price target.
Last week, Instagram CEO Adam Mosseri did an hour+ long interview on the 20 Minute VC podcast as Boone came away with a greater appreciation of Instagram's focus on messaging and Reels to drive engagement, the structural monetization headwinds for video-based products, and Meta's commitment toward evolving with social media.
Also Read: What's Going On With Meta Platforms Stock Tuesday?
Instagram CEO Adam Mosseri is prioritizing products for teens and creators. To that end, with teens spending more time in direct messages (DMs) than stories and more time in stories than feeds, Instagram has shifted more resources toward messaging.
Validating the view of youth as trendsetters, Mosseri claims that virtually all engagement growth over the past five years has come from DMs and Stories, with any increase in feed coming from video.
Reels now account for nearly 50% of time spent on Instagram as recommendations are helping to fill out the feed as public posting continues to experience headwinds.
Notably, the analyst views Reels as helping to support creators as Stories have read-through rates in the teens. In Mosseri's opinion, Instagram still trails TikTok in exploration-based ranking.
Mosseri explained that a ten-second video is the equivalent of four posts in the feed as users scroll faster than swiping through videos. To that end, Threads have significant monetization potential, while Reels will lead to lower monetization efficiency.
With CPMs for Instagram Stories at a discount to the Instagram feed per Gupta Media, Reels may only reach a fraction of Instagram's historical monetization level based on time.
With the launch of Stories, Reels, and Threads, Meta has successfully overlaid its social graph onto new social formats. Boone views this as increasingly important today, given the potential for significant transformation of technology through the advancements of AI, as he views Meta's willingness to adapt and evolve as helping to make the business more defensible while highlighting how competitive social is.
Interestingly, the analyst noted Reels was initially built and distributed through Stories, but this was the wrong onramp for users. Mosseri believes it gave TikTok an extra ~year to scale, though Instagram is now catching up.
With Instagram claiming that Reels did not gain user traction through Stories, Boone continues to question what the onramp for Spotlight is given its integration into Friend and Creator Stories. At the same time, it remains two swipes away from the opening camera screen.
Given Meta's AI tailwinds, profitability, and optionality with AR/VR, the price target is a premium to the market.
Price Action: META shares closed higher by 1.29% at $322.71 on Tuesday.
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