Meta lowered its full-year performance forecast, reels into the "family barrel" the biggest hope| to see the financial report

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Reels is seen as a product of Mark Zuckerberg's defense against its "nemesis" TikTok, which now seems to be playing an increasingly important role in the Meta "APP Family Barrel."

In the second year after Meta announced the official launch of the "meta-universe", the first quarter of 2022 earnings release, titanium media APP found that Reels has become the most concerned focus of the market and analysts.

Meta's fiscal report for the fiscal year ended March 31 showed that Meta's total revenue for the first quarter was $27.908 billion, up 7% from $26.171 billion in the same period last year, and net profit was $7.465 billion, down 21% from a net profit of $9.497 billion in the same period last year.

While Meta's first-quarter revenue fell short of Wall Street analysts' expectations, diluted earnings per share exceeded expectations, driving its after-hours stock price up more than 19 percent. As of the close of trading on April 27, EST, Meta Platforms was quoted at $205.73 per share, up 17.59%, with a total market capitalization of $556.772 billion.

In terms of operating results, as of March 31, 2022, the average number of daily active users of the Meta service "family" (which includes services such as Meta, Instagram, WhatsApp and Messenger) was 2.87 billion, an increase of 6% compared to the same period last year; the number of monthly active users of the Meta service "family" was 3.64 billion, an increase of 6% compared to the same period last year.

As always, Meta's business model is strongly advertised-driven. Meta's revenue from advertising business was $26,998 million in the first quarter, compared to $25,439 million in the year-ago quarter. Revenue from other businesses, which actually includes reality Labs, was just $215 million, compared to $198 million in the year-ago quarter.

For the second quarter, Meta expects total revenue to be between $28 billion and $30 billion.

The rationale given by its chief financial officer, David Wehner, is that the outlook reflects an expected continuation of the trend that affected first-quarter revenue growth, including weakness in the second half of the first quarter, which coincided with the outbreak of war in Ukraine. The performance guidance assumes that changes in exchange rates will negatively impact the year-over-year growth in revenue in the second quarter based on current exchange rates.

In addition, Meta will continue to monitor developments regarding the feasibility of transatlantic data transfers and their potential impact on its European operations.

Meta began to lower its full-year performance forecast. Meta expects total spending in 2022 to be between $87 billion and $92 billion, down from the previous forecast of $90 billion to $95 billion.

Although in the earnings report Meta said that the spending growth in 2022 will be mainly driven by the application "family", followed by Reality Labs, which is regarded as the core of the concept of taking on Meta's "metacosmity", however, in the analyst question session after the earnings report, Titanium Media APP observed that Reels has become a hot topic in the eyes of analysts about the direction of Meta's business.

Reels is a product launched by Meta in response to competitive pressures, and they acknowledged this in their earnings report for the quarter. Reels has a strong association with Instagram in The Meta Product Matrix. It has similar features and interfaces to TikTok. Instagram users can record and edit 15 to 60 seconds of video clips set to music together in Reels and share them to the Reels tab on their stories, exploration feeds and user profiles.

Short videos are a sharp weapon for individual users to kill time, both in Chinese and foreign markets, which also makes it the best weapon for social giants to compete for user time and attention. But within the Meta APP Matrix Empire, will Reels preempt the user spending time and engagement of its core social products, Facebook and Instagram?

David Weiner acknowledges this, but he believes that the short video business Reels helps increase overall user engagement, and this is not the first time this has happened, and there have been similar dynamic changes when the Stories business was launched before.

Meta is not willing to put too much commercial responsibility on Reels. Zuckerberg said that Reels' commercial advertising is not a one-time thing, and it requires customers to spend time making content adjustments and optimizing their creative capabilities, similar to the previous adjustment of advertising forms in Stories to adapt to the delivery of in-feed ads. Reels already has ads served, and as the quality of the content improves, the amount of ads served will increase, but only if it doesn't affect the user experience.

Sheryl Sandberg, Meta's chief operating officer, endorses such a strategy and is confident in Reels' future. She said that Reels' user engagement is very good, the business is growing very fast, and the management has a plan to increase advertising under the premise of ensuring the user experience, and this process will last for many years.

Another source of confidence from Meta's management is that the ultimate pursuit of customers is a return on investment, and Reels' current level of commercialization is lower than that of Information Flow and Stories, so customers who use the Reels platform to run ads will also face greater growth opportunities.

However, on the results call, Michael Nathanson, an analyst from Moffett Nathanson, raised an interesting question – Reels has clearly become an increasingly important product for the company, and the growth rate of the number of Reels short videos does not match its current level of commercial monetization, will this affect the company's revenue?

Weiner's answer is that Instagram users spend more than 20% of their time on Reels, so they see an opportunity to increase advertising in Reels, but it is still in the early stages of this plan, and it will take many years to improve in the future. It takes years for a business to be commercialized to a maturity level, and it takes more sustained efforts for the global market to achieve this goal.

Considering the current number of user views, Meta management believes that the opportunity for commercialization of Reels is very impressive. This is taken from the experience in Stories. As a short video function on Facebook, Stories was launched in early 2017, and Weiner revealed that its real ad volume growth began in 2018, and at the end of 2021, the commercial monetization level of Stories business in developed markets was similar to that of the information flow business.

Similar to the mutually exclusive issues between user time and activity products, how does Meta management deal with conflicts between Stories and Reels, also as short video products, in terms of commercial monetization? Does the advertising budget that an advertiser places on the Reels platform affect the amount of ads they spend in Stories and other in-feed ads?

In this regard, Meta's solution is to hope that customers can increase the budget of each platform, and hope to improve the overall level of business monetization through the efforts of marketing teams around the world.

It is worth noting that as far as the current situation is concerned, the heat of the metaverse has cooled down compared with the past, which is probably related to the iteration cycle of VR equipment and the actual shipments, coupled with the expectations of all walks of life for this year's global economy, which will directly affect the consumer market.

In April, the IMF lowered its World Economic Outlook, which it released in January. The IMF said the Russo-Ukrainian war had triggered a costly humanitarian crisis that needed to be resolved peacefully. At the same time, the economic damage caused by this conflict will lead to a significant slowdown in global economic growth and push up inflation in 2022.

Fuel and food prices have risen rapidly, with vulnerable groups in low-income countries being hit the hardest. Global economic growth is expected to slow from an estimate of 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. The forecasts for economic growth in 2022 and 2023 were revised down by 0.8 and 0.2 percentage points, respectively, from the January forecast.

While Zuckerberg is satisfied with the current sales of the Quest 2, he also re-emphasizes the long-term characteristics of hardware products. He said that development plans are usually several years in advance, and there are many factors to consider, and multiple teams in the company are working hard to carry out this work, including virtual reality, augmented reality and other fields.

"These situations may not be until the end of this decade, and the efforts we are making so far are all about the basic work that users will do in the 2030s with a more exciting future." Zuckerberg said.

In this way, the prospect of Meta's hardware business is still a "big pie" with a ten-year cycle, but Zuckerberg also said that it will not give up short-term gains, which can be obtained from software products, such as Horizon Worlds, and considerable benefits can be seen in the short term.

(This article was first published on titanium media APP, author | Li Chengcheng)