Meta reported a large beat on both the top and bottom line in Q2, with revenue nearly $3 billion ahead of estimates at $47.52 billion and EPS of $7.14 more than 21% ahead of consensus. Ad impressions growth meaningfully rebounded from the mid single-digits to the double-digits in Q2. 

For Q3, Meta also set the bar quite high by guiding for $49 billion in revenue, pointing to a consecutive quarter with >20% growth. For context, Meta was expected to report <15% growth in both Q2 and Q3. 

In the bigger picture, Meta gave a line of sight to $100 billion in capex in 2026 as it works to build out its Prometheus accelerator cluster, which Mark Zuckerberg stated is expected to be the first 1+ GW scale cluster to come online next year. Combined with accelerating expenditures, there will possibly be some pressure on operating margin next year.  

Revenue Growth Returns to 20% Range 

Meta reported 21.6% YoY growth to $47.52 billion in Q2, nine points ahead of its guidance for 12.6% growth to $44 billion at midpoint. Advertising revenue was robust, growing 21.5% in the quarter, a more than five point acceleration from 16.2% growth in Q1. 

According to management, the beat was driven by AI unlocking greater efficiency and gains in their ad system: “This quarter, we expanded our new AI-powered recommendation model for ads to new surfaces and improved its performance by using more signals and longer context. It's driven roughly 5% more ad conversions on Instagram and 3% on Facebook.” They also pointed toward advancements in the recommendation system helping to lead to a 5% increase in time spent on Facebook and 6% on Instagram. 

In addition, Meta is expanding its tools for smaller advertisers “with a meaningful percent of our ad revenue now coming from campaigns using one of our generative AI features.” 

For Q3, Meta guided for a consecutive quarter of >20% growth, seeing revenue between $47.5 to $50.5 billion, or 20.7% YoY at midpoint. This includes a 1% growth tailwind from FX. 

Meta did not provide formal guidance for Q4, though it did state that it expects YoY growth to be slower than Q3 as it laps a stronger comp in Q4 2024. 

Advertising Key Metrics – APAC Outperforms in Impressions, ARPP Rises Nearly $2 YoY 

Ad impressions meaningfully rebounded from 5% growth in Q1 to 11% in Q2, though to confirm this quarter as a possible inflection back to double-digit growth, Meta would need to either maintain this growth or accelerate from here in Q3. 

• US & Canada impressions rebounded to 9% growth, up from just 4% in Q1. 
• Europe impressions growth was 6%, up slightly from 5% in Q1.  
• APAC outperformed with impressions growth of 16%, up from 9% in Q1. 
• Rest of World impressions growth was 7%, rebounding from 1% in Q1.  

However, ad pricing decelerated slightly, down from 10% in Q1 to 9% in Q2. Meta said this slight deceleration was from stronger impression growth, though pricing benefitted from “increased advertiser demand, largely driven by improved ad performance.” 

• US & Canada pricing increased 11% YoY, decelerating from 14% in Q1.  
• Europe pricing increased 17%, accelerating from 9% in Q1.  
• APAC pricing increased 2%, compared to 3% in Q1.  
• Rest of World pricing increased 15%, compared to 17% in Q1.   

Overall, ad revenue growth was the strongest in Europe and Rest of World at 24% and 23%, respectively, while US & Canada and APAC grew 21% and 18% YoY. 

Meta’s Family of Apps daily average people (DAP) increased 6.4% YoY to 3.48 billion, and average revenue per person (ARPP) rebounded to 14.8% YoY to $13.65. This is a nearly $2 increase from Q2 last year, and closing in on Q4 2024’s record at $14.25. 

Meta is working to expand its monetization pathways across its Family of Apps, rolling out video and image ads to Threads and ads to statuses and channels on WhatsApp. However, Meta acknowledged that Threads will not be a meaningful driver, while WhatsApp ads earn lower average prices that Facebook/Instagram as usage is skewed towards lower priced markets. 

Margins Improve, but Watch 2026 Expenses 

Gross margin held steady with Q1, and operating margin improved sequentially. However, Meta made a handful of key comments about 2026 expenses that could pressure margins down the line. 

• Gross margin was 82.1%, flat QoQ and up 0.8 points YoY. 
• Operating margin was 43.0%, up 1.7 points QoQ and 5 points YoY. 
• Net margin was 38.6%, down 0.7 points QoQ but up 4.1 points YoY. 

Meta provided some initial commentary for 2026 expenditures, signaling an acceleration in expenses, with growth likely far outpacing revenue growth. Meta said that 2025 total expenses will increase 20-24% YoY, and 2026 total expenses are likely to increase at a higher rate.  

Rising infrastructure costs are the primary driver from a “sharp acceleration in depreciation expense growth and higher operating costs as we continue to scale up” data center infrastructure, followed by employee compensation. Management also singled out energy costs, finance leases and increased spending on cloud services to meet capacity needs as other factors behind higher operating expenses. 

However, revenue growth for 2026 is expected to be just 14% to $215 billion, though given the magnitude of Q2’s beat and Q3’s guide (at nearly $6 billion above estimates combined), this is likely too low. Assuming revenue comes in closer to $230 billion, with an 82% gross margin and a 27-30% increase in expenses, operating margin may fall from ~39-40% towards 34-36%. 

EPS 

Meta recorded a massive EPS beat in Q2, reporting 38.4% growth to $7.14 versus estimates for 14% to $5.90. This was driven by operating leverage and Meta’s large revenue beat. 

Heading into the report, Meta was expected to see negative earnings growth in both Q3 and Q4, but given that EPS beat estimates by 21%, it’s likely that these estimates move higher in the coming days/weeks considering the upbeat revenue guidance for Q3 and expenditure guidance remaining relatively unchanged.  

For FY25, Meta was expected to report 8.5% growth to $25.90, but given the nearly $1.30 beat in Q3, FY25 EPS is likely to be revised to $27+, or at least 13% YoY. 

Cash Flows and Balance Sheet 

Operating cash flow margin dipped sequentially, though FCF took a larger hit due to rising capex. Following Meta’s large-scale move to acqui-hire Scale AI for nearly $15 billion, cash and equivalents have shrunk sharply, with analysts questioning how management plans to fund increasing capex come 2026. 

• Operating cash flow was $25.56 billion, for a 53.8% margin. This contracted from a 56.8% margin in Q1 but was up from a 49.6% margin in the year ago quarter. 
• Free cash flow was $8.55 billion, down more than (21%) YoY as capex rose more than 100% YoY to $17.01 billion. FCF margin was 18%, down from a 24.4% margin in Q1 and a 27.9% margin in the year ago quarter. 
• Cash, equivalents and marketable securities totaled $47.07 billion, down from $70.23 billion last quarter. Debt remained steady at $28.83 billion. 

Earnings Q&A: 2026 Capex in Focus, Nearing $100B 

Meta’s earnings call focused primarily on its heightened expenditures for next year and 2026 capex approaching $100 billion, as well as the monetization pathways for these investments. Management reaffirmed a goal to build out multiple GW of data center capacity in a quest to reach superintelligence, under the belief that it will “improve every aspect of what we do”. However, management also was clear in stating that genAI will not be a meaningful revenue driver this year or next.  

Management stated that while the “infrastructure planning process remains highly dynamic, we currently expect another year of similarly significant CapEx dollar growth in 2026 as we continue aggressively pursuing opportunities to bring additional capacity online to meet the needs of our AI efforts and business operations.” Given that 2025’s capex is currently guided to increase ~$30 billion YoY at midpoint, this suggests Meta is targeting $100 billion in capex next year.  

CFO Susan Li provided more clarity on the driving factors of this capex increase, saying that Meta expects “a greater mix of our CapEx to be in shorter-lived assets in 2025 and '26 than it has been in prior years,” or higher spending in servers, networking, and data centers to continue building out AI training and inference capacity. 

Given the fact that cash and equivalents have shrunk rather dramatically, analysts questioned about how Meta will finance this capex, as it will strain cash flows. Li said that Meta does expect to finance “some large share” of capex itself, though it is exploring other avenues to co-develop data centers with financial partners. She added that some models will “will attract significant external financing to support large-scale data center projects,” giving them some degree of flexibility in their cash spending. 

Analysts also questioned Meta about the ROI on this capex, considering how its aggressive push into the metaverse backfired. Management said that “on the core AI side, we continue to see strong ROI,” such as the visible impacts to ad conversions and impressions. On the genAI side, Meta said it is “clearly much, much earlier on the return curve and we don't expect that the genAI work is going to be a meaningful driver of revenue this year or next year,” though the company remains very optimistic about long-term monetization pathways. However, the question here is how much will Meta pour into capex before genAI becomes a meaningful driver – including 2026’s estimate, Meta’s three-year capex is already approaching $200B+.

Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in "META" at the time of writing and may own stocks pictured in the charts.

Recommended Reading:

• The I/O Fund’s Top 15 Stocks for Q3 2025
• Microsoft FYQ4: One of the Strongest Earnings Reports in Multi-Decade History
• Taiwan Semiconductor Q2 Earnings: FY25 Guidance Raised on Strong AI Demand
• Oracle Cloud May Grow Much Faster than Big 3

Meta reported some mind-boggling growth numbers for 2024 – 22% revenue growth, 48% operating income growth driving a 7 point margin expansion, and 60% EPS growth. As we had recently discussed in Big Tech AI Stocks to Showcase AI Gains, Capex in Q4 Reports, Meta’s decision to be “aggressively investing in compute and data center capacity as it continues developing its Llama family of models, fine-tuning its feed to boost engagement and increase time spent on apps, and optimizing ad delivery” is paying off.

Meta doubled down on its $60-65 billion capex for 2025, despite fears that DeepSeek’s breakthroughs would substantially alter the AI spending narrative. In fact, Meta CEO Mark Zuckerberg explained that Meta would be investing “hundreds of billions of dollars” towards AI infrastructure in the long run, while making multiple predictions for the path of AI and AI at Meta in 2025. Core AI is paying off as ad pricing growth is accelerating, aiding high revenue growth, while margins and cash flows remain very strong.

Despite the blowout Q4 report, Meta guided for a rather soft Q1, with the midpoint of its revenue guide below consensus, forcing Q1 growth to be revised nearly 1 point lower. EPS growth is also expected to become much more challenging in the back half of 2025, with consensus estimates pointing to growth of just 4.6% in Q3 and an unusual (2%) decline in Q4.

Financials

Meta reported quite a significant beat on EPS of 19%, while revenue also beat estimates, driven by increasing monetization. However, management guided for Q1 below consensus at midpoint, pointing to a sharp 7 point growth deceleration sequentially and the slowest growth since Q2 2023.

• Revenue of $48.4 billion beat estimates by $1.4 billion, representing YoY growth of 20.6%.
• For FY24, revenue rose 22% YoY to $164.5 billion.
• For Q1, management guided for revenue of $39.5 billion to $41.8 billion, which at the $40.65 billion midpoint, was approximately $1 billion below estimates for $41.6 billion. The guide was impacted by a 3% FX headwind.

Management shared interesting commentary on how they are increasing monetization to drive improved revenue performance, via improving marketing performance for advertisers. Management explained that in the second half of the year, they introduced Andromeda, an ML system in partnership with Nvidia, which “enabled a 10,000 times increase in the complexity of models we use for ads retrieval.” This allowed Meta to “run far more sophisticated prediction models to better personalize which ads we show someone,” leading to “an 8% increase in the quality of ads that people see on objectives we’ve tested,” aiding ROI for advertisers. Automation tools made an appearance as well, with Meta noting that adoption of Advantage+ Shopping campaigns (tailored for e-commerce) surpassed a $20 billion annual run-rate while growing 70% YoY in Q4.

Margins and EPS

Meta’s focus on efficiency and margins in 2023 has translated into significant gains in 2024. Not only is operating margin now approaching 50%, but what was more impressive is the 50% EPS growth this quarter on top of a 201% growth comp.

Here’s how Meta’s operating margin expansion has looked since Q4 2022:

• Operating margin rose 5.5 points sequentially and 7.4 points YoY to 48.3%. This is also more than double the 19.9% margin reported in Q4 2022.
• For FY24, operating margin was 42.2%, up 7.7 points from 34.5% in 2023 as operating income rose 48% YoY.
• Net margin was 43.1% in Q4, improving from 38.7% in Q3 and 35% a year ago. Two years ago, net margin was just 14.5%.

This substantial margin expansion has led to significant earnings growth. Meta’s EPS for 2024 rose 60% after increasing 73% in 2023.

• Q4 EPS of $8.02 beat estimates by $1.28, and increased 50% YoY.
• FY24 EPS of $23.86 increased 60% YoY.
• For Q1, EPS is estimated to be $5.29, for growth of 12.3% YoY. 2025’s EPS growth is expected to become more challenged, with consensus pointing to growth of just 5.5% to $25.18, with single-digit to declining growth in the second half of the year.

Cash flows have been extremely strong as well – it’s quite absurd to see operating cash flow growing at 30% at nearly a >50% margin at this nearly $100 billion scale.

• Operating cash flow was $28.0 billion in Q4, rising more than 44% YoY and representing a margin of 58%.
• FY24 operating cash flow was $91.3 billion, up 28% YoY. OCF margin was 56%, improving from 53% in FY23.
• Free cash flow was $13.2 billion, up 14% YoY as capex rose 90% YoY to $14.4 billion. FCF margin was 27%.
• FY24 free cash flow was $52.1 billion, up 21% YoY for a 32% margin.
• Cash, equivalents and marketable securities totaled $77.8 billion, while debt totaled $28.8 billion.

Key Metrics

• Ad impressions grew 6% YoY, slowing from the 7% growth last quarter. Europe and Rest of World dragged on growth, with impressions rising 5% and 3% YoY respectively.
• Ad pricing increased 14% YoY, accelerating from 11% growth last quarter. Europe and Rest of World drove this growth, at 16% and 23% YoY respectively.
• Average revenue per person (ARPP) was $14.25, up 16% QoQ and 16% YoY, highlighting Meta’s improvements in monetization.

Valuation and Risks

Despite shares rising 72% over the past year, Meta is trading as one of the cheapest stocks among the Mag 7, at 27x forward EPS. Alphabet is the only of the 7 to be cheaper on a bottom-line basis at 22x forward EPS, with Nvidia at 28x following this week’s selloff.

2025’s earnings growth forecast raises some red flags, as EPS is expected to grow just 5% for the full year, with growth decelerating significantly. Meta’s rally had gained steam as it reported consecutive triple-digit growth quarters, and this 38 point growth deceleration and risk of slipping into declining growth presents a headwind to shares, as it suggests AI monetization efforts are not translating into consistent EPS growth quarter after quarter.

On a top-line basis, Meta is trading for 11.5x revenue, and 9.4x forward revenue. This is the highest level it has traded at since 2018, and more than 50% higher than its five-year average of 7.5x revenue. Cash-flow based valuations offer a bit more room to the upside, with Meta trading at 21.8x operating cash flow, below its peaks of 24-26x in 2020 and 2021; for FCF, Meta is trading at 34x, below peaks of 43x.

One other risk presents itself from Q1’s below consensus guide, as revenue growth estimates have already come down. Prior to earnings, Meta was expected to see growth of ~14.5% to 14.6% in each quarter of 2025, though Q1 is now expected to see growth of 13.8%.

Capex Commentary – Implications for Nvidia and Broadcom

Though there were fears that DeepSeek would impact the trajectory of AI spending this year, Meta doubled down on its planned capex of $60 to $65 billion in 2025. Management explained that the increase would be driven by investments supporting genAI and core businesses, though the majority would be directed towards core, where Meta is seeing the most AI growth arise. CEO Mark Zuckerberg also discussed the “hundreds of billions of dollars that we will invest in AI infrastructure over the long-term,” as it brings 1 GW of capacity online this year while working on a 2 GW data center.

For 2025, CFO Susan Li provided a breakdown of where capex will go, saying data center spend will rise to support build outs of large-scale training clusters and higher power density facilities entering primary construction phases. Networking spend is expected to rise as higher-capacity networks get established to support both core AI and gen AI traffic.

However, perhaps the most important part of the call was Li’s discussion on AI accelerators, as it has implications for both Broadcom and Nvidia. Li explained that Meta would be “pursuing cost efficiencies by deploying our custom MTIA silicon in areas where we can achieve a lower cost of compute by optimizing the chip to our unique workloads. In 2024 we started deploying MTIA to our ranking and recommendation inference workloads for ads and organic content. We expect to further ramp adoption of MTIA for these use cases throughout 2025 before extending our custom silicon efforts to training workloads for ranking and recommendations next year.”

Management still emphasized that they are “planning to significantly ramp up deployment of GPUs in 2025, and we'll continue to engage with our vendors and invest in our own silicon to meet those needs,” though they did not comment on whether they are supply constrained like Microsoft.

Analyst Q&A

Analysts questioned Meta about the MTIA accelerator ramp, growth drivers moving forward, and most importantly, the impact of DeepSeek.

Q, Brian Nowak (Morgan Stanley): “How should we think about the main gating factors as to how quickly you'd be able to move a higher percentage of your engagement to your custom silicon?”

A, Susan Li (Meta): “We're also very invested in developing our own custom silicon for unique workloads, where off-the-shelf silicon isn't necessarily optimal and specifically, because we're able to optimize the full stack to achieve greater compute efficiency and performance per cost and power because our workloads might require a different mix of memory versus network, bandwidth versus compute and so we can optimize that really to the specific needs of our different types of workloads.

Right now, the in-house MTIA program is focused on supporting our core ranking and recommendation inference workloads. … We'll continue ramping adoption for those workloads over the course of 2025 as we use it for both incremental capacity and to replace some GPU-based servers when they reach the end of their useful lives. Next year, we're hoping to expand MTIA to support some of our core AI training workloads and over time, some of our Gen AI use cases.”

Reading between the lines here suggests that ramping MTIA is not necessarily coming at the expense of lost share to Nvidia; rather, Meta is working to replace old GPUs with custom chips to increase capacity and power workloads with more efficient chips, supplementing GPU purchases from Nvidia.

JP Morgan’s Douglas Anmuth asked about the impact of DeepSeek and other models that “potentially leverage Llama or others to train faster and cheaper,” and what impact this has.

Zuckerberg said that it is “probably too early to really have a strong opinion on what this means for the trajectory around infrastructure and CapEx,” though the mix shift between compute and inference as reasoning models arise was already something that Meta had been experimenting with.

He went on to explain, “Of all the compute that we're using, that the largest pieces aren't necessarily going to go towards pre-training. But that doesn't mean that you need less compute, because one of the new properties that's emerged is the ability to apply more compute at inference time in order to generate a higher level of intelligence and a higher quality of service, which means that as a company that has a strong business model to support this, I think that's generally an advantage that we're now going to be able to provide a higher quality of service than others.”

Conclusion

Meta’s Q4 was indeed a strong report, though Q1’s weak guide was a bit questionable given the strength of the recent report. Execution has been pristine since 2023, with operating margin more than doubling with significant cash flow and EPS growth. ROI from investments in core AI is becoming more evident as ad pricing growth is accelerating, offsetting decelerating growth in ad impressions.

Damien Robbins, Equity Analyst for the I/O Fund, contributed to this analysis.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Recommended Reading:

• Microsoft FQ2 Earnings: Soft revenue guidance
• Amphenol: High-Performance Interconnects for the AI Ecosystem
• Microsoft FQ2 Earnings Preview: Growth acceleration from AI expected in the 2H 2025
• Credo: AI Networking Company Surging in Revenue from Active Electric Cables (AEC)