Threads is the talk of the town as Zuck takes on Musk - but 2 things need to happen for Meta stock to see a boost

• Meta launched Threads on Wednesday, drawing 30 million users in hours.
• The Twitter rival could give Meta stock a boost depending on how the user base grows and how advertisers respond.

Meta Platform's new app, Threads, launched Wednesday to viral fanfare. Mark Zuckerberg said the product — the most formidable competitor yet to Elon Musk's Twitter — attracted more than 30 million users within hours of launching.

That number looks set to balloon, given how easily you can import existing profile information from Instagram, which attracts roughly 2 billion users a month.

But for the product to have a meaningful impact on Meta stock, which is already up more than 132% this year, two things have to happen, according to Morningstar senior equity analyst, Ali Mogharabi.

"As far as initial impressions, the timing of Threads is impressive, since it just followed Musk's latest restrictions on Twitter" he told Insider on Friday. "But whether all the disappointed Twitter users go to Threads and actually stay there remains to be seen."

Morningstar maintains a fair valuation of $278 for Meta stock. The research firm has held their forecast above $250 even when shares traded below $100 last year following its metaverse flop.

User growth must rival Twitter

While Meta has yet to open the doors to advertisers on Threads, whether brands want to even get on the app comes down to how viable of a Twitter competitor it becomes.

The number of users that have flocked to Threads already is impressive, but Meta still has to make it interesting enough for people to interact with others on the platform, and use the app on a daily basis.

"If Meta decides to monetize Threads with ads, advertisers will want to see the user base growing to what Twitter had," Mogharabi said. That way, if advertisers do indeed pull back from Musk's platform, Threads offers a viable new choice.

Twitter has more than 330 million monthly active users, and Mogharabi estimates that Threads would have to show advertisers that it's on pace to reach that, too.

Meta's multi-app ecosystem

Even if hundreds of millions of users download Threads, it's unlikely to make a significant impact unless everyone uses the platform on a daily basis. Mogharabi said he'll be looking to see whether user engagement on Threads can match that of Instagram and Facebook, Meta's two other apps.

"Advertisers will want to see a high ratio of daily average users to monthly average, the percentage of users that actually log on everyday," he said.

From an advertising perspective, if Threads grows into a key product for Meta, it would bolster the attractiveness of the company's entire portfolio of apps.

Brands could streamline their ad purchases by allocating resources all to one place, targeting a single ecosystem's user base.

"We've always been confident in one of the main competitive advantages Meta has: the flywheel of its various apps," he said. "They continue to attract more users, and with more users, more interaction, that brings in advertisers. We never thought the introduction of TikTok or anything else would threaten that flywheel."

It can keep more users within that Meta ecosystem, it gives advertisers an opportunity to purchase ads all in one place.

To be sure, Mogharabi noted Meta faces a steep challenge in converting loyal Twitter users into permanent, regular Threads users. Since it's a brand new product, Zuckerberg may have to limit advertisements on the newsfeed so it doesn't clutter the user experience.

"You don't want to show too many ads and dissapoint new users, and have them quickly go back to Twitter," he said. "That could delay the monetization of Threads. It's tough to pose Threads as a complete substitute to Twitter, at least initially."

On Friday, Meta stock hovered above $292 per share, climbing roughly 2.5% over the last week.