Meta Just Issued a Status Update. Wall Street Should Read Into It.

Meta

META 2.82%

‘s push of its short-form video platform Reels, a TikTok copycat, angered some high-profile users, causing Kim Kardashian and Kylie Jenner to advocate for making “Instagram Instagram again.” With its new features, Meta seems focused on engaging people back on older surfaces such as Messages and Stories. As of the third quarter, Meta said more social interactions were already moving to messaging.

Data hint at why: Internal company dashboards viewed by The Wall Street Journal show growth in U.S. monthly active people on Instagram has moderated this year after growing strongly for years. In the U.S., story posts on Instagram appear to have declined in recent months, and overall comments on the app have been declining over the past two years. Time spent on the app, though, seems to have increased over that period.

The prominence of Reels, launched on Instagram in mid-2020, likely explains these trends. Indeed, on its third-quarter conference call, Meta noted a 50% increase in Reels played over the previous six months across Facebook and Instagram daily. That hasn’t turned into revenue growth. Meta said on its third-quarter call that, as Reels’ popularity grows, the platform displaces areas they are better able to monetize. Specifically, Meta said it is suffering “more than a $500 million quarterly revenue headwind” with the shift. 

The hit comes at a bad time. Since Meta grew sales over 50% in the second quarter of 2021 from a year earlier, business has slumped. Wall Street is forecasting the company will end the year with its third straight quarter of annual sales declines. The result has been a 64% drop in its stock price this year, erasing some $600 billion in market value.

(Re)enter the status update—likely a strategic move to get people back on more lucrative areas of the app before the end of the year. 

Instagram’s homage to BeReal, meanwhile, is sending its own message. Despite its sudden popularity this year, the app has garnered limited interest. Roughly three years after its launch, BeReal has racked up just 53 million worldwide downloads, according to an October Sensor Tower report, and only 9% of Android users with the app actively installed were opening it daily. To Instagram, an app with some 2 billion users, BeReal can hardly be viewed as a real threat.

Meta’s move seems to say more about the company’s reluctance to spend on truly unique content to reignite ad growth as it is deploying billions of dollars toward its metaverse ambitions and having to lay off 13% of its staff. The alternative explanation isn’t much more encouraging: Perhaps after decades of evolution, creatives in the sector are finding themselves tapped out.

The good news is that, amid a broader advertising slowdown, Wall Street’s bar for Meta this quarter looks low. Analysts are forecasting the company’s revenue will fall 6.5% in the period from a year earlier—its sharpest quarterly decline as a public company. AB Bernstein’s recent channel checks give some reason for hope, though. Its research showed that, while advertisers are diversifying into TikTok and retail media ads such as those on Amazon, Meta “still accounts for the lion’s share of display ad spend,” adding that spending into next year will likely grow across all channels. Data from

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show Instagram may be a particular beneficiary of Twitter’s loss of ad spending in recent months as well.

Even so, Meta’s status still looks a little tired.

Write to Laura Forman at laura.forman@wsj.com