Threads, a replica of Twitter, has become available for download on the Apple App Store and Google Play Store, excluding Europe. This launch comes at a critical time when Twitter has been encountering challenges since Elon Musk privatized it. Twitter has witnessed a decline in advertisers, and some notable celebrities have refused to subscribe to the Twitter Blue service. Mark Zuckerberg has taken advantage of this opportunity to target Twitter’s vulnerabilities. Engaging in a charm offensive, he has posted on Threads, Instagram, Facebook, and even on Twitter itself (after an 11-year hiatus), possibly aiming to antagonize Musk and entice users to migrate to Threads.
Yesterday, Meta’s stock price experienced an increase of nearly 3%, followed by an additional 1% gain in after-market hours, coinciding with the imminent release of Threads. The market appears to be more optimistic about Threads compared to the metaverse. So far this year, Meta’s share price has risen by an impressive 136%. It is the second best performing S&P 500 component stock after Nvidia.
Nevertheless, the success of Threads for Meta is not guaranteed. The app must gain traction, but fortunately, Threads doesn’t start from scratch. It leverages Instagram’s user base, allowing users to effortlessly transfer their profiles to Threads. This minimizes the obstacles to signing up for an account and facilitates adoption.
According to Business of Apps, Instagram boasts 2.27 billion monthly active users, while Twitter has 401 million. If Threads can convert just 18% of Instagram’s user base, it would surpass Twitter in terms of user count.
Hence, I believe Threads won’t face challenges with account signups. However, this is merely the first step. To succeed, Threads must retain active users who consistently engage with the app. This aspect remains uncertain, as adopting Threads as part of users’ daily social media routine would require building a new habit, which is no easy task.
Opting for a separate app is likely a risk management strategy. Business of Apps estimates that Instagram generated $51.4 billion in revenue in 2022, accounting for approximately 45% of Meta’s total revenue. Integrating Threads’ functionality within Instagram would be a risky move, jeopardizing a significant portion of revenue for Meta.
Initially, Threads will not feature advertising. However, if it gains enough traction, it may consider incorporating advertising in the future. Twitter generated $4.4 billion in revenue in 2022, marking an 11% decline compared to the previous year. If Threads managed to capture half of that revenue, amounting to $2.2 billion, it would constitute a mere 2% of Meta’s total revenue in 2022. This figure is not significant.
Therefore, risking a $51.4 billion revenue (Instagram) for a $2.2 billion revenue (Threads) does not seem justified. A standalone Threads app makes more sense since if it fails, the cost to Meta would be minimal. However, if it succeeds, it would beat Twitter and eliminate another competitor in the social media landscape, solidifying Meta’s dominance—an outcome that is far more desirable.
