Meta downplays Threads in favor of AI, metaverse investments

Meta’s new Twitter rival, Threads, is nothing yet to get too excited about; Mark Zuckerberg said as much himself. “Threads is, like, not a massive project,” the chief executive said in an earnings call yesterday, in which he reviewed a strong quarter marked by a return in digital advertising and the company’s highest quarterly sales growth since 2021. Zuckerberg added: “Threads has been dramatically more than we expected in terms of the adoption and the rate of [adoption]. We thought this was going to be kind of a project that we just had a small team working on for a while, but it really kind of blew up and created a big opportunity immediately.” Ad Age Small Agency Awards See all of the 2023 winners Click here The sentiment feels like a pail of cold water, especially given the fanfare to which Threads rolled out this month. But the reality is that Twitter, despite it being the most popular microblogging app, has never been a major moneymaker. Even before Elon Musk took over, revenue was negligent compared to that of other social media stalwarts like Instagram. And Threads itself has already seen a 70% percent drop in traffic from its peak in early July, according to Sensor Tower data cited by the Wall Street Journal. Mike Proulx, VP and research director at Forrester Research, remains optimistic about the role that Threads could play within Meta’s social media portfolio. “Threads is a great example of what Meta’s efficiency is capable of,” he told Ad Age, alluding to the relatively small team that built the platform. Zuckerberg did relay a plan for growing Threads into its “fifth great app,” although he emphasized the amount of work that would take. Monetization, he said, would not be addressed for a few years. However Threads plays out, Zuckerberg told investors that over time, they should expect that Meta’s focus will fall squarely on AI and the metaverse. Related: Inside Meta's AI pitch at Cannes The AI part, of course, makes a lot of sense. Meta plans to use AI tools to enhance its advertising business—the largest contributor to the company’s overall revenue, accounting for 98.4% this quarter. AI Sandbox is Meta’s new generative AI program, which aims to help companies to be more efficient with their creative. Almost all of Meta’s advertisers are using at least one of its AI-powered products, Zuckerberg said. The company also has plans to drive revenue through the development of foundational AI models, such as Llama 2. While Llama 2 is open source for most, particularly large companies, such as Microsoft, Amazon and Google, will have to pay Meta before using the model, Zuckerberg said. The tech giant’s continued interest in the metaverse, however, is where investors appear to be throwing up their hands. Reality Labs, Meta’s AR/VR division, saw revenue dip nearly 40% this quarter compared to last year, as well as posted an overall operating loss of $3.7 billion. And the bleeding has no end in sight. Meta expects Reality Labs’ year-over-year losses to “increase meaningfully” in 2024 as a result of continued AR/VR development, said Susan Li, Meta’s chief financial officer, in the earnings call. Meta plans to roll out its Quest 3 headset sometime next year—a potentially crucial moment for the company given Apple’s entrance into the mixed reality headset space earlier this year. Read more: A marketing guide to Apple's headset Several times during the earnings call, Zuckerberg had to defend his metaverse ambitions to vexed investors. “I kind of get that a lot of investors might want to see us spending less here in the near term,” he said. “My view is that we are leading in these areas. I believe that they're going to be big over time.” Proulx remains skeptical: “You have to wonder how long Meta will hold onto this vision,” he said. Meta’s second-quarter revenue was $32 billion—$31.5 billion of which came from ad revenue—an 11% increase compared to a year ago. Net profit was 16% higher than this time last year, at $7.8 billion.

Meta downplays Threads in favor of AI, metaverse investments

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