Meta Platforms (META) surged past Wall Street expectations in its first-quarter earnings report.
The company delivered a powerful message about the enduring strength of its advertising machine and the growing return on its artificial intelligence (AI) investments. The tech giant posted earnings per share of $6.43, crushing the consensus estimate of $5.23 and marking a 37% year-over-year increase. Revenue rose to $42.3 billion, up 16% from the prior year, outpacing projections by $1 billion.
Advertising, the backbone of Meta’s business, remained the dominant force, contributing $41.39 billion to quarterly revenue. A 10% rise in average ad prices — more than double expectations — combined with a 5% increase in ad impressions, drove the strong results. AI played a central role. Meta’s Llama models enhanced ad targeting and efficiency, giving the company an edge over rivals like Alphabet, which reported just 8.5% ad growth in the same period.
Meta now boasts 3.43 billion daily active users across its platforms. Instagram Reels engagement is up 20% year-over-year, further fueling ad inventory and pricing power. Threads and WhatsApp are being positioned for future monetization, with WhatsApp alone expected to generate $10 billion annually by 2027.
Capex Climb Raises Eyebrows
Despite a stellar quarter, investor enthusiasm was tempered by Meta’s aggressive capital spending plans. While the company spent $14 billion on capital expenditures in Q1 — just under its previous full-year pace — it revised its 2025 capex guidance sharply upward to a range of $64 billion to $72 billion. That signals up to $58 billion in spending in the remaining three quarters, largely driven by its ongoing AI and infrastructure buildout.
The pivot to long-term bets like Meta AI, AI devices, and immersive platforms — including its Reality Labs division — has yet to bear meaningful fruit. Reality Labs reported a staggering $4.21 billion operating loss in Q1 and remains a drag on overall profitability, with full-year losses projected at $15 to $20 billion. Meta’s share buybacks also slowed, down 11% year-over-year, likely as funds were redirected toward capex.
Mark Zuckerberg acknowledged the pressure, but remained resolute: “Even with our significant investments, we don’t need to succeed in all of these areas to have a good ROI.” Still, investors are watching closely, wary that sustained high spending on still-unproven platforms could erode margins.
External Headwinds: Regulation, China, and the Dollar
Meta faces significant external risks beyond the balance sheet. In Europe, new regulatory crackdowns threaten a major revenue source. The European Commission fined Meta €200 million for violations of the Digital Markets Act and may force changes to its business model that “could result in a materially worse user experience” and lower revenue, according to CFO Susan Li. Europe accounted for 23% of Meta’s revenue last year.
Geopolitical tensions are also starting to sting. While Meta doesn’t operate in China, Chinese e-commerce giants like Temu and Shein are among its top global advertisers, accounting for roughly 11% of its 2024 revenue. But the U.S. crackdown on de minimis import exemptions has already begun to curb their ad spending.
There is, however, one unexpected tailwind: the dollar. After facing currency-related headwinds in 2024, Meta now projects a one-percentage-point boost to Q2 revenue growth thanks to the dollar's recent decline.
Outlook: Optimism Meets Reality
Meta’s Q2 revenue guidance of $42.5 billion to $45.5 billion exceeded analyst expectations, reinforcing its leadership in digital advertising. The company also lowered its full-year operating expense forecast, even with an 11% year-over-year headcount increase, suggesting improved cost discipline.
Despite concerns around regulatory risk and runaway capital expenditures, Wall Street remains largely bullish. William Blair reaffirmed an “Outperform” rating, citing Meta’s scale and resilience amid potential macro slowdowns. The company’s AI investments are clearly beginning to pay off — not only in the form of more efficient ad tools, but also through new consumer offerings like its stand-alone Meta AI app, powered by its latest Llama 4 model.
Yet even as the company looks to the future with AI glasses and immersive digital worlds, investors are signaling a clear preference: stick with what works. Advertising.
Meta stock jumped over 7% in early Thursday trading following the earnings announcement, reclaiming ground lost in the wake of recent market jitters. Whether that momentum holds may depend less on Zuckerberg’s vision for the metaverse, and more on whether the ad dollars — and disciplined spending — continue to flow.
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