Meta Platforms slips as MS lowers 2023 estimates on falling engagement, rising headwinds
Kelly Sullivan

Meta Platforms (NASDAQ:META) shares slipped on Friday as Morgan Stanley lowered its 2023 revenue and EBITDA estimates, citing "falling total engagement" and the continued rise of Reels, both of which are believed to be negatively impacting revenue.
Analyst Brian Nowak lowered his revenue and EBITDA estimates for 2023 by 11% and 21%, respectively, and cut his price target to $225 from $280 as a result. He noted that while Reels has seen impressive usage, it monetizes at a lower rate than other formats. And when coupled with lower time spent, it's likely to create "near-term headwinds to revenue growth."
"In all, total estimated US Facebook/Instagram time fell 1% [year-over-year] in [the second-quarter] and 2% [year-over-year] in July," Nowak wrote, adding that Instagram saw a 7% decline year-over-year in July is "particularly notable" given it came after the redesign to focus on Reels and creator content as opposed to social content. 
"This in our view highlights the execution risk META is facing as it works to blur the lines between social and short form video," Nowak added.
Meta Platforms (META) fell more than 2% to $170.78 in premarket trading. 
Nowak noted that Instagram is migrating towards Reels engagement, where it could reach as much as 34% of time spent by the fourth-quarter of 2023. This would be up from 22% in the second-quarter of 2022, "creating a further growth headwind."
Reels could reach $5.4B in revenue by 2023, up from roughly $1.5B in 2022, accounting for 7% of Meta's (META) total revenue growth, Nowak estimated. While that is good news, it also means that Reels would account for only 4% of total ad revenue by next year and given the lower engagement trends, non-Reels ad revenue may only grow 3% year-over-year next year.
The analyst conceded that there is the potential for Reels to be bigger and potentially reach $10B in revenue next year, but it may take longer than expected to reach that figure.
On Wednesday, Meta Platforms (META) rolled out its Stars on Facebook Reels feature, expanding a way for creators to earn money on Facebook via its short-video platform.