Meta Platforms (META) Stock: Shares Rise 6.6% Following Better-Than-Expected Q1 Results

TLDR

Meta beat Q1 earnings expectations with EPS of $6.43 vs $5.23 forecast Revenue reached $42.3 billion, up 16% year-over-year Capital expenditure forecast increased to $64-72 billion for the year Ad price growth of 10% more than doubled projections Meta expects Q2 revenue between $42.5-45.5 billion, above analyst expectations

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Meta Platforms reported first-quarter earnings that surpassed Wall Street expectations, sending its stock up over 6% in premarket trading on Thursday. The company posted earnings per share of $6.43, well above the consensus estimate of $5.23 and last year’s $4.71. Revenue climbed to $42.3 billion, exceeding expectations of $41.3 billion and marking a 16% increase from the previous year.

Meta Platforms, Inc. (META)

The strong performance was primarily driven by advertising, with ad revenue reaching $41.39 billion against expectations of $40.5 billion. While user growth and ad views came in as expected, ad price growth of 10% year-over-year was particularly impressive, more than doubling projections.

In the earnings call, CEO Mark Zuckerberg outlined five key areas for future returns on capital expenditure: improved advertising, more engaging experiences, business messaging, Meta AI, and AI devices. “Even with our significant investments, we don’t need to succeed in all of these areas to have a good ROI,” Zuckerberg stated.

Meta increased its annual capital expenditure forecast to between $64 billion and $72 billion, up from the previous range of $60 billion to $65 billion. This higher spending forecast may have influenced the company’s share buyback activity, which decreased by 11% from last year.

For the second quarter, Meta projected revenue of $44 billion at the midpoint, slightly above analyst expectations. The company also lowered its projected expenses for the full year, despite increasing its headcount by 4% since the end of 2024 and 11% over the past year.

Regulatory Challenges and International Markets

Meta faces growing regulatory pressures, especially in Europe. The company recently received a €200 million ($228 million) fine for violations of the EU Digital Markets Act. Chief Financial Officer Susan Li warned that compliance with European Commission feedback “could result in a materially worse user experience for European users, and a major impact to our European business and revenue as early as the third quarter of 2025.”

Europe represents 23% of Meta’s 2024 revenue, with sales up 23% from 2023. The region’s Digital Markets Act and Digital Services Act impose strict requirements on large tech companies, with potential fines for repeated violations reaching up to 20% of annual revenue under the DMA and 7% under the DSA.

Almost two-thirds of Meta’s 2024 revenue came from outside the United States. This international exposure includes China, where Meta’s apps don’t operate but where the company sells ads to Chinese businesses targeting global markets. These Chinese advertisers, including e-commerce platforms Temu and Shein, accounted for 11% of Meta’s 2024 revenue.

However, trade tensions are beginning to affect this revenue stream. “We have seen some reduced spend in the U.S. from Asia-based e-commerce exporters, which we believe is in anticipation of the de minimus exemption going away on May 2,” Li noted during the earnings call.

Despite these challenges, analysts remain positive about Meta’s outlook. William Blair analyst Ralph Schackart maintained an Outperform rating on Meta stock, stating, “While Meta will not be immune should there be a macro slowdown, we believe it will perform better on a relative basis than less scaled digital advertising platforms.”

The company’s Reality Labs segment, focused on virtual and augmented reality, reported an operating loss of $4.21 billion for the quarter. This division continues to require heavy investment as Meta builds out its metaverse vision.

Currency exchange rates are providing a positive tailwind for Meta’s international business. After facing a three percentage point headwind to annual revenue growth in the first quarter due to a strong dollar, the company now projects a one percentage point currency tailwind to revenue growth in the second quarter.

Meta’s stock has gained more than 25% over the past 12 months, despite being down more than 7% since the start of the year. The latest earnings report appears to have renewed investor confidence in the company’s growth strategy and ability to monetize its massive user base.

The company is currently battling the Federal Trade Commission in court over monopoly claims, with the FTC seeking to force Meta to sell Instagram and WhatsApp. Settlement discussions have reportedly occurred, with CEO Mark Zuckerberg offering up to $1 billion, while the FTC has asked for as much as $30 billion, lowering its demand to $18 billion.

Meta’s stock was trading at $585.30 in premarket trading on Thursday, up 6.6% from the previous close of $549.00.

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