Threads Could Hurt Twitter,

 

Threads Could Hurt Twitter, but It’s Unlikely to Do Much for Meta

The chattering classes are abuzz about the launch of Threads, a new social-media platform from Meta Platforms, parent of Facebook, WhatsApp, and Instagram. Threads, which launched on Wednesday night, is a near carbon copy of Twitter, a place to post and discuss content and ideas, mostly in text form.

Threads already has more than 30 million downloads, according to Meta CEO Mark Zuckerberg. Investors bid up Meta’s stock on the launch, suggesting they think Threads might crush Twitter. It just might, and yet the market is still overestimating Thread’s importance to Meta’s own business—and its stock.

Meta (ticker: META) has a habit of copying ideas created by rivals. Stories, a format for photos and short videos, duplicates a feature first created on Snap’s (SNAP) Snapchat. Reels mimics TikTok, the user-generated video app owned by China’s ByteDance. Now, Facebook is taking direct aim at Twitter, which has been struggling to regain its financial footing since Elon Musk paid $44 billion for the company in October.

Despite Thread’s Twitter-like appearance, there are some key differences between the apps. Threads has just one news feed, which includes people you choose to follow along with users the algorithm thinks might interest you. On Twitter, you can choose one or the other.

Unlike on Twitter, there’s no list of trending topics, and you can’t send direct messages to other users. Another important difference is that the service hasn’t been rolled out in Europe yet, which limits the audience considerably.

Most notably, there’s no advertising on Threads, at least not yet. Adam Mosseri, who runs Instagram, told Platformer, the tech newsletter, that the company has no immediate monetization plans. “Honestly, we’re not focused on it at all right now,” Mosseri said. But Zuckerberg has said Threads can eventually reach 1 billion users. That would be quadruple the 238 million who were using Twitter before it went private last year.

Wall Street analysts have lately become more bullish on the outlook for Meta shares, but Threads isn’t the catalyst.

KeyBanc analyst Justin Patterson reiterated his Overweight rating on Meta this past week, boosting his target price from $280 to $335, 15% above recent levels. But his call reflects improvement in the core ad business, not the Threads launch.

Wells Fargo analyst Ken Gawrelski wrote in a note this past week that “at maturity,” Threads could potentially boost profits and revenue by 1% to 3%. “Since very few advertisers and budgets will be incremental to Threads from Meta, the key is driving incremental usage,” he writes. “Expect limited near-term monetization.”

Elon Musk has said that Twitter’s revenue this year would be around $3 billion, down from $5.1 billion in 2021. If Meta were to add an incremental $5 billion in revenue in 2024—basically an entire Twitter-size business—it would boost Meta’s total revenue by less than 5%.

Or consider this: Twitter’s current valuation is likely down sharply from its $44 billion acquisition price. Fidelity, which participated in Musk’s deal, has marked down its estimated value of Twitter to $15 billion. If Threads is worth just as much, that’s only a 2% increase to Meta’s current value, a move that was more than priced in on Wednesday, when Meta shares rose 2.9% ahead of the Threads launch.

The bottom line is that Twitter is fundamentally a small business, with a far smaller user base than any of Meta’s own apps. Threads isn’t the new Instagram. It’s a whittled-down Twitter—and unlikely to be a needle-mover for Meta.