Most companies avoid calling out their competition by name during public conference calls with analysts. But Meta Platforms (META -1.32%) CEO Mark Zuckerberg couldn't keep one name out of his mouth during the company's fourth-quarter earnings call: TikTok.

Zuckerberg mentioned TikTok five times during the call, as he focused on the potential for Meta's rival product Reels to grow engagement and improve monetization long term. Here's why the Meta founder was so focused on the social media pioneer in short-form video.

Three screenshots of Instagram on an iPhone.

Image source: Instagram.

Where people are spending their time 

Zuckerberg said, "People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly."

Indeed, there's a growing number of apps and websites vying for our attention. Anything from Wordle to the latest streaming TV show technically competes with Facebook. But the fact that Zuckerberg chose to call out TikTok, specifically, was a way for him to introduce the company's decision to invest more in Reels.

A few sentences later, Zuckerberg said Reels is one of the top investment priorities for 2022 -- despite the name change to Meta suggesting he's all-in on metaverse investments. It's already made good on some of those investments, expanding to 150 countries, creating new editing tools, and improving monetization capabilities for creators to incentivize more content.

A massive competitor growing very fast

Zuckerberg also noted, "The thing that is somewhat unique here is that TikTok is so big as a competitor already and also continues to grow at quite a faster rate off of a very large base."

Zuckerberg has never faced a competitor quite like TikTok. It has over 1 billion monthly active users, and it's adding hundreds of millions more per year. While Meta has nearly 3.6 billion users across its apps, growth slowed considerably last year. In fact, its flagship app, Facebook, saw daily active users decline sequentially for the first time in history last quarter.

TikTok is absolutely a big threat to Facebook and Meta's other social media properties. But this also shows the potential for Reels to grow much bigger, even as it's already the biggest source of engagement growth on Instagram. Later in the call, Zuckerberg said: "We face a competitor in TikTok that is a lot bigger, so it will take a while to compound and catch up there. But fundamentally, you know, we think that there's a lot of potential for [Reels] to continue growing," indicating TikTok's success could bode well for the long-term potential of Reels.

How Reels is different

When asked how Reels differentiates itself from TikTok and similar products, Zuckerberg noted the community around the short-form video format can play a major role in both the content shared and the conversations around that content. "So, [we're] seeing somewhat different Reels across Facebook and Instagram, and I'm sure you see different stuff across TikTok, too," Zuckerberg said.

He went on to note that Meta and TikTok aren't the only companies working on short-form video, and that the format as a whole is taking hold in lots of different apps, comparing it to photos in feeds and then stories. "We're seeing people spend a lot more time on [short-form video] than what we've seen from apps so far. And that's also reflected in the success that other apps like TikTok have had. So there's a lot more to go here," he added.

As the format grows across multiple apps, the differences will likely become more clear, just as they have with photo and stories sharing in different apps, including differences between Facebook and Instagram in that regard. Users don't share the same content across Meta properties, let alone competitors'.

What lies ahead for Meta

While Zuckerberg sees a clear competitive threat from TikTok, he also believes the format it popularized will benefit his company long term. That's because Reels has the potential to increase overall engagement with its apps, and it also has the potential to monetize at a similar rate to feeds or stories, instead of the lower rate it sees from long-form video based on what Meta's seen so far.

In the near term, the shift in engagement from feeds and stories to Reels will drag down revenue growth. It could even negatively impact Facebook's average revenue per user, which climbed steadily higher even amid the uncertain early days of the pandemic. Long term, however, Reels should produce strong engagement and better monetization levels. 

The challenge, then, is for Facebook and Instagram to grow their market shares, and keep social media competitors from stealing users away. That's why Reels remains a top investment priority. Management has a long track record of success in the face of these competitive threats and transitions, so it's hard to bet against them.