What happened
Shares of Meta Platforms (META 0.80%) were on the rise Wednesday, up as much as 4.2% before settling into a 3.5% gain as of 1:57 p.m. ET.
The move was notable, since all of the major indices were in the red at that time.
Investors appear to be enthusiastic over the prospect of Meta launching a new microblogging rival to Twitter called Threads, which is set to be unveiled on Thursday. While a Twitter competitor might not make a huge difference in Meta's value, with a market cap already at $755 billion, it could make an incrementally positive contribution and also benefit Meta's data-gathering capabilities.
NASDAQ: META
Key Data Points
So what
Threads is set to be unveiled Thursday, July 6, and there appears to be a wide range of opinions as to how successful the new app would be. Of course, any success whatsoever would mean incremental revenue for Meta, which is perhaps why investors are skewed to the bullish side.
There does appear to be a lot of positive factors here for Meta. First, Twitter has endured several controversies recently under new CEO Elon Musk, who officially acquired Twitter last October. The most recent involved Musk deciding to limit the amount of posts Twitter users can see in a day for a short period, which irked users. However, there have also been others, including the requirement for users to pay for a blue "verified" check mark, as well as Musk's own controversial and politically charged tweets, which may have generated concern over inherent bias within the Twitter platform since his takeover. Additionally, some advertisers have either left Twitter or reduced their ad spend on the platform since Musk took over.
Moreover, Meta has an enormous user base to work with, with 3.81 billion monthly active users (MAUs) across its family of apps, including Facebook, Instagram, and WhatsApp, with 2.99 billion MAUs on Facebook alone as of March 31. Twitter only has 363.7 million MAUs in total, according to a recent estimate provided by Insider Intelligence.
With that kind of easily accessed user base and Meta's incredibly deep roster of advertising partners, there appears to be a good chance it will at least partially succeed in pulling users away from Twitter or at least splitting their time.
The Threads platform may also be an opportunity to glean more user data for Meta, which was cut off from gathering internet-usage data for many iOS users in late 2021 following privacy changes Apple (AAPL +0.54%) made to the iOS platform. That reduced-targeting capability cost Meta tens of billions in revenue last year, although some new AI tools have apparently allowed Meta to regain some of those ad-targeting capabilities. Still, Meta must increasingly depend on its own internal data, so if it can launch a somewhat successful microblogging site, Meta could potentially glean more insights that could lead to even better ad targeting in the future.
On the other hand, getting users to switch over from Twitter may prove a difficult slog. Twitter has a first-mover advantage and the network effects that come with it, which constitute a very important moat in all leading social media companies. So it will certainly be interesting to see how a company as large, operationally successful, and advanced as Meta will fare in storming Twitter's "castle." It could truly be a case of a nearly unstoppable force colliding with a nearly immovable object.
Now what
Meta Platforms is still 25% off its all-time high, although it has also appreciated an incredible 237% off its lows last October, more than tripling in just nine months!
Investors have been very encouraged by the recovering economy and greater optimism over advertising spending, along with Meta's prowess at deploying AI to boost new products such as Reels, which has seemingly fended off the threat of short-form video app Tik Tok.
Now with the launch of Threads, the narrative may shift further to one of growth and opportunity rather than one of shrinking revenues and competitive threats.
While certainly not as cheap as it was and not without risk, it appears Meta stands poised to succeed in an age of artificial intelligence when large user bases and access to large troves of proprietary data will be huge advantages.
