Meta is in good shape — even without Threads and its strong debut

The app resembles and is directly competing with Twitter at a time when that platform is struggling. That could mean several billions of dollars for Meta
META,
-0.50%
in ad revenue in a more bullish scenario of significant U.S. and international adoption over time, said KeyBanc.

By midday Thursday, Threads had garnered 30 million sign-ups, Meta Chief Executive Mark Zuckerberg said in a posting on — where else — Threads. It took Twitter, by comparison, 780 days to reach 10 million users, according to Forbes.

But that’s not the reason for the price hike, said Patterson.

“We believe this will be an immaterial contributor near term as Meta likely focuses on adoption over monetization. Bigger picture, Meta’s core ad products are ramping (estimated 6- to 7-point acceleration in second-quarter pricing), which gives us confidence to raise our 2023 and 2024 estimates for [earnings per share] to $12.81 and $16.77, respectively,” he wrote in a note to clients.

Still, Threads’ early performance is nothing to be sniffed at, the analyst conceded. KeyBanc expects the new platform could boost 2024 revenue by $800 million, to $6.7 billion, or 1% to 5% over its previous estimates, if Meta attracts an audience at least one-third the size of Twitter’s current U.S. audience or can reach 50% of Facebook’s U.S. and Canadian audience.

“We expect Threads will receive a disproportionate amount of attention over the coming weeks,” said the note. “The real story, in our view, is that the core ad platform remains very healthy.”

See also: Twitter CEO responds to Meta Threads: ‘We’re often imitated — but the Twitter community can never be duplicated’ 

KeyBanc is expecting that Meta’s
META,
-0.50%
current business transformation could yield consistent double-digit revenue growth with a leaner cost structure. It expects Reels to reverse course from being a revenue headwind in 2022 to growth by the end of 2023, while Meta should benefit from the artificial-intelligence product cycle, with its Advantage+ product achieving positive feedback.

The strong dollar is no longer a headwind for Meta, and WhatsApp is also emerging as a more meaningful revenue stream.

Past launches by Meta have not always succeeded, Keybanc noted, calling out as one example Facebook Dating, which was announced at the 2018 developer conference and sent the stock of Match
MTCH,
+2.63%
down 22% for the day.

“However, despite the fanfare, we have yet to see Dating experience meaningful success. We would argue the same for Portal (launched in 2018, discontinued in 2022), Facebook Neighborhoods (launched in 2021, shut down in 2022), and Horizon Worlds (virtual reality community),” said the note.

Threads does come with some nice features. It’s easy to join via an Instagram profile, privacy is front and center, and KeyBanc is expecting the platform to be less toxic than Twitter, where new owner Elon Musk, also the CEO of Tesla Inc.
TSLA,
-0.76%,
has allowed many formerly banned accounts back on the platform and scaled back the content-moderation team.

“To the degree people are using their public Instagram profiles, identity will likely become a core element within Threads,” the analysts wrote. “This could be a meaningful differentiator vs. Twitter, where the lack of identity can encourage more toxic speech and raise brand safety concerns.”

Meta was certainly getting lots of attention on Thursday. Online searches for Meta’s stock were up 455% after the Threads launch, according to a study by online-trading specialists InvestinGoal.

The spike in interest comes after Musk irked Twitter users by limiting the number of tweets users can view daily and putting TweetDeck behind a paywall.

Meta’s stock has gained 145% in the year to date, while the S&P 500
SPX,
-0.29%
has gained 16%.

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