TikTok's video leadership means ad headwinds for rivals - at least for now: BofA
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The surge of TikTok (BDNCE) - and its leadership in bringing short-form videos to the forefront of social media - is driving big changes and represents a threat to advertising growth at big-name rivals including Snap (SNAP
-2.6%), Instagram (FB) and YouTube (GOOG
+0.1%) (GOOGL
+0.2%), BofA says.
In just three years, TikTok has taken leadership in the category that's shaken up social media, analyst Justin Post notes. Creators upload 612 million short videos every 24 hours now, and social media users are watching a total of 74 billion minutes of the videos each day (mainly on mobile), he says.
"In the U.S., TikTok, YouTube Shorts (GOOG) (GOOGL) and Instagram (FB) are driving the majority of industry growth, but Facebook (FB) is still early and Snap (NYSE:SNAP) is also seeing traction for Spotlight," Post writes. "Stand-alone apps Triller and Dubsmash are also trying to carve out positions in the industry."
In its leadership spot, TikTok generates more than 90 minutes of daily time spent per active user, well above rivals, according to Sensor Tower.
Meanwhile, various reports suggest TikTok can grow ad revenues more than 170% year-over-year for 2022 - growth that could mean a headwind of 210 basis points for its Western competitors, Post says.
TikTok's traction is most challenging for Snap (SNAP), Instagram (FB) and YouTube (GOOG) (GOOGL), with a head-for-head battle for younger users and ad dollars. But Facebook (FB), Pinterest (PINS
-2.9%) and even streaming companies might see impact as well.
For Instagram (FB), "Our scenario analysis suggests that transition to Reels could represent a 2% revenue headwind in 2022 that could turn into 1.3% tailwind by 2024 as Meta ramps up monetization on the feature." With YouTube Shorts (GOOG) (GOOGL), it sees a $1.3 billion revenue headwind this year, but the chance to generate $9 billion in revenue in 2024.
As for Snap (SNAP), it's "held off" on monetization, but if it starts to monetize Spotlight by the fall, Post figures it could generate around $89 million in revenue by year-end - a 1.5% revenue tailwind that could grow to 4% in 2023.
MKM Partners has recently weighed in on online advertising, saying the sector is facing macroeconomic challenges in the near term, enough to cut back its estimates for first-quarter earnings.