Meta Platforms’ Reels Could Become a Revenue Tailwind by FY24

By Sam Boughedda 

Meta Platforms (NASDAQ:) was maintained at Buy with its price target cut to $200 from $225 by Jefferies on Tuesday, who said Reels could become a revenue tailwind by FY24.

The firm explained that, at the moment, Reels is still a small contributor with a $1 billion annual run rate. However, Jefferies’ analysis indicates it can flip from a revenue headwind to a tailwind by FY24.

“In the n-t META faces tough 2H comps, but the stock set-up becomes more attractive in 1H23 as comps ease and Reels monetization becomes material. The macro impact on ad budgets creates uncertainty, but could be reflected in the stock’s all-time low valuation (12x FY23 EPS),” Jefferies said in its note to clients.

However, the firm revealed that its proprietary survey shows that IG Reels engagement significantly lags behind TikTok. “While TT’s lead over META is concerning, we would argue that the differential in time spent also represents an opportunity for META to address the highly engaging short-form video market,” Jefferies added.

“Based on our bottoms-up build, the shift to Reels will likely cannibalize the core business and pose a $1B headwind to IG ad rev in FY23. That said, we are already seeing evidence of encouraging engagement (20% of overall IG time spent) and monetization ($1B annual rev run-rate) giving us conviction that Reels can be a tailwind to rev in FY24. More recently, our checks also indicate that Reels pricing is already at parity with Stories and that ad loads are starting to ramp,” they continued.