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.
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