(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

 

WASHINGTON - Facebook needs to check out of the virtual world and into the Reels one. Mark Zuckerberg’s iffy bet on the metaverse cost parent Meta Platforms, whose market capitalization had fallen below $600 billion on Tuesday, more than $10 billion last year just as its main bread and butter – bringing people onto its social media platforms – is starting to struggle. If those funds were instead pumped into the company’s TikTok copycat Reels, Facebook may have a much better chance of turning its investments into a return.

Though Zuckerberg is often crowned the king of social media, his original brainchild was based on making an established product better. When he started Facebook in his Harvard dorm room, Friendster and MySpace already existed, and Facebook simply improved upon their business models.

Further iterations came from riffing off of others’ ideas. Its “Stories” feature mimics disappearing message app Snap’s offering. Even its purchase of Instagram tacked on a business that was already doing well rather than creating a similar one from scratch.

This has proved to be a good use of cash. Meta had an almost 30% return on invested capital last year, and an average of more than 20% in the five years prior. That compares to Twitter, whose investments inked a negative 10% return last year, and posted negative returns in two of the five years prior to that, according to Refinitiv data.

Reels, which launched on Facebook last September after being unveiled on Instagram, still needs substantial investment to catch up to market leader TikTok, which has more than a billion monthly active users. Zuckerberg said last week Reels is the fastest growing content format. And if it continues to catch on, Facebook will be better at monetizing its base. It brings in roughly 60 cents per user per hour, 10 times more than TikTok, according to Morgan Stanley.

Plus reaching out to existing users in a way that seems familiar will translate more quickly to the type of returns that shareholders want. Reality Labs, which houses the metaverse, had a top line of $2.3 billion last year while Facebook’s family of apps had revenue of $116 billion and operating margins of 49% to boot. Payoffs in the Reels world are better than those in the metaverse.

 

CONTEXT NEWS

- The market value of Meta Platforms fell below $600 billion as of market close on Feb. 8. That puts it below the threshold of “covered platforms” in antitrust proposals in the U.S. House of Representatives that target big technology companies.

- Shares in the Facebook parent have been falling since it reported 2021 fourth-quarter earnings on Feb. 2 that fell below analyst expectations.

- It had an 8% drop in net income to $10.3 billion compared to the same period in 2020. It also broke out the performance of its virtual reality unit, known as Reality Labs, for the first time. That division had a $10.2 billion operating loss in 2021.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Lauren Silva Laughlin and Sharon Lam) ((For previous columns by the author, Reuters customers can click on CHON/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | gina.chon@thomsonreuters.com; Reuters Messaging: gina.chon.thomsonreuters.com@reuters.net))