Morgan Stanley reported that time spent on ByteDance’s (BDNCE) TikTok and Google’s (NASDAQ:GOOG) (GOOGL) YouTube continued to increase in the second quarter, although Meta Platforms’ (NASDAQ:META) Facebook and Instagram witnessed losses, citing third-party data. A panel of experts led by Brian Nowak observed that YouTube (GOOG) (GOOGL) experienced engagement growth for the third consecutive quarter, 20 percent over 2019 levels, while total time spent increased 3 percent year-over-year. The analysts described the trends as “encouraging,” adding that YouTube’s big user base already spends 72 minutes per day on the platform and that ByteDance’s (BDNCE) TikTok continues to provide competition.
Along With Youtube TikTok Sees Rise
ByteDance’s (BDNCE) TikTok saw a 14% increase in total time spent year-over-year during the period, as U.S. daily users grew roughly 11% year-over-year to 95 million and average time spent increased 3% to approximately 91 minutes per day, despite a “significant deceleration” from the roughly 45% year-over-year growth seen in the previous two years. The analysts wrote that “This speaks to how the second derivative engagement risk from TikTok to other platforms may be set to start falling.” He further added that From a monetization standpoint, the emphasis is on TikTok’s capacity to grow ad products, develop programmatic technologies, and ultimately achieve ROI for advertisers.
In the second quarter, overall time spent on social media climbed by 4 percent year-over-year to 2.5T minutes on the top six platforms. In contrast, Meta Platforms (META) experienced a 1 percent fall year-over-year, with analysts noting that the risk of Reels cannibalizing other products has increased. The analysts highlighted that overall time spent on Instagram and Facebook is 12 percent and 16 percent above second-quarter 2019 levels, respectively, but that Instagram’s year-over-year growth has “notably decelerated” to just 2 percent, down from nearly 20 percent in the first quarter. In the second quarter, overall time spent on Facebook’s blue app decreased by 3 percent year-over-year, compared to a 5 percent year-over-year dip in the first quarter.
Given that Reels still monetizes at significantly lower rates than core Feed/Stories offerings, the analysts concluded that the slowing time spent trends in combination with META’s increasing and successful efforts to emphasize Reels point to a rising tactical risk of Reels engagement becoming more cannibalistic to near-term time and revenue.
Other social networks also struggled in the second quarter, with Snap’s (NYSE: SNAP) Snapchat seeing a 1% year-over-year loss in time spent, but that was an improvement over the 3-13% year-over-year declines the company has had in the previous 12 months. In the second quarter, total time spent on Pinterest (PINS) decreased by 9% year over year, according to Morgan Stanley, which was the smallest number of minutes since 2017. The firm said that “Continued engagement challenges contributed to our downgrade and we remain cautious as PINS focuses on shifting toward lower monetizing short-form video offerings on the platform.”
As it was noted earlier this week, Alphabet (GOOG) (GOOGL) is not immune to the general economic downturn and plans to restrict hiring in the second half of 2022.
Analysts Downgrade Meta Due to Slowed Revenue, TikTok Competition
Analysts at Needham downgraded Meta on Monday, advising investors to sell the company and reinvest the money in more enticing investment possibilities. The analysts cited sluggish revenue growth along with increased costs as reasons for downgrading Meta, the company that owns Facebook, Messenger, Instagram, and WhatsApp, to underperform from hold. It won’t likely be until 2030 that the Metaverse generates tangible income. Additionally, social media services like TikTok pose an existential danger to Meta.
“Whether Meta wins against TikTok or not, we believe its [return on invested capital] will be attacked regularly by competitors until one day Meta won’t win. The structural valuation problem, as we see it, is that Meta doesn’t own its content or its distribution,” the note reads.
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