While Meta Platforms has made a strong start with Threads, their new social networking platform reminiscent of Twitter, the question remains as to how this early popularity will translate into revenue.
Potential User Shift and Revenue Growth
One aspect to keep an eye on is whether users will shift their time from ad-supported platforms like Facebook and Instagram to the ad-free Threads. This shift could have implications for Meta’s revenue growth. Additionally, it is still uncertain how the growing popularity of Threads will impact Twitter.
On Monday morning, Mark Zuckerberg, CEO of Meta, announced in a Threads post that the platform had garnered over 100 million sign-ups over the weekend, an incredibly impressive debut. However, Adam Mosseri, Head of Instagram, has stated in recent interviews that Meta currently has no immediate plans to monetize Threads.
Sign-ups vs. Ad Dollars
While the number of sign-ups is undoubtedly promising, it alone will not be sufficient to attract advertisers. Advertisers are interested in how much time people will spend on the site, and it is too early to determine that at this stage. Zuckerberg envisions Threads reaching one billion users eventually, and if it comes close to that number, Meta’s ad revenue and profit could experience a significant boost.
Zuckerberg expressed his hopes in a Threads post over the weekend, stating, “No one has achieved its full potential at this scale before. That’s what I hope we get right.”
The Potential Ad Market Size for Threads
According to this week’s Tech Trader column, one billion users on Threads—rather than just downloads—would be roughly four times the number Twitter reported shortly before Elon Musk acquired the company last year. Musk projects that Twitter’s revenue for this year will be approximately $3 billion, down from $5.1 billion in 2021.
Thus, analysts and investors are left with the question of how big the potential ad market for Threads is. Should Threads outperform and absorb all of Twitter’s ad revenue, the impact on Meta’s business would be relatively moderate.
Evercore ISI analyst Mark Mahaney predicts that Threads, a new social media platform launched by Meta, has the potential to attract 200 million daily active users within the next few years. Mahaney also estimates that Threads could generate $8 billion in annual revenue, resulting in a 5% increase in his current revenue forecast for 2025 and a potential boost of 6-7% to earnings per share.
Mahaney describes Threads as a cleaner, simpler, friendlier, and more authentic alternative to Twitter. However, he points out that the platform lacks several useful features such as full-text search, a “following” feed, and a Web version. Additionally, Threads is yet to launch in Europe due to uncertainties surrounding the EU’s privacy regulations.
It is crucial to monitor whether Threads can sustain healthy growth without diminishing user engagement on Facebook and Instagram, a concern that arises whenever Meta introduces new features to its existing apps. For example, Reels, the TikTok-style video feature on Facebook and Instagram, has not been as successful in terms of monetization compared to other parts of the platform. Meta is actively working to improve this aspect.
While it is positive that Threads is gaining market share from Twitter, the shift of users from Instagram to the ad-free Threads may not be as favorable for Meta and its shareholders.
Addressing this issue, RBC Capital analyst Brad Erickson acknowledges that Threads’ rapid user growth, with 100 million users within a week, is impressive. However, it is important to closely monitor any signs of cannibalization among Meta’s family of apps. Instagram appears to be aggressively encouraging user engagement with Threads but should take precautions to prevent any negative impact on its current apps.
On Monday, Meta’s shares experienced a 1.2% increase, reaching $294.10.