ii view: Meta tests nerves with massive AI spend

Meta CEO Mark Zuckerberg and the Meta logo. Photo by VINCENT FEURAY/Hans Lucas/AFP via Getty Images.

Third-quarter results to 30 September

• Revenue up 26% to $51.2 billion
• Earnings down 83% to $1.05 per share
• One-time income tax charge of $15.93 billion
• Cash and equivalents held of $44.45 billion

Guidance:

• Expects fourth-quarter revenue of between $56-to-$59 billion
• Expects full-year capital expenditure of $70-72 billion, up from a previous estimate of $66-72 billion 

Chief Executive Mark Zuckerberg said:

"We had a strong quarter for our business and our community. Meta Superintelligence Labs is off to a great start and we continue to lead the industry in AI glasses. 

“If we deliver even a fraction of the opportunity ahead, then the next few years will be the most exciting period in our history."

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ii round-up:

Outlook estimates from Facebook and WhatsApp owner Meta Platforms Inc Class A (NASDAQ:META) have been met with caution given growth in investment expenditure on AI initiatives which potentially outpace growth in sales. There are also concerns about more constrained ad spending among Asian retail customers. 

Investment spending could now be as much as $72 billion versus previous estimates of $66 billion, while estimates for revenue in the current fourth quarter were mildly disappointing. Group cash held of $44 billion is also down from $72 billion earlier this year, with Meta tapping the bond market to raise $25 billion in funding.

Shares in the Nasdaq 100 company fell 11% in post results trading, their biggest one-day fall in three years. Meta’s stock came into these numbers up by around a quarter so far in 2025, similar to the Nasdaq 100 index. Google owner and ad sale firm Alphabet Inc Class A (NASDAQ:GOOGL) is up by close to 50% year-to-date. 

Meta operates across the two businesses of Apps (Facebook, Instagram, Messenger and WhatsApp) and Virtual Reality (VR) gaming and metaverse interests under its reality labs division. 

Third-quarter revenue to late September climbed 26% to $51.2 billion, although earnings of $1.05 per share reflected a $15.93 billion one-off tax charge. Strip out the tax charge and earnings would have been $7.25 per share, beating Wall Street hopes of $6.69 per share. 

Activity users for Meta apps rose 8% from a year ago to 3.54 billion during September. The average price of an advert increased 10% year-over-year. 

Meta continues to work through its spending plans for next year but anticipates further upward pressure on capital expenditures and expense plans. 

Broker Morgan Stanley retained its ‘overweight’ stance on Meta shares, but downgraded 2026 and 2027 earnings forecasts by 5% and 4% respectively. 

ii view:

Founded in 2004 by Mark Zuckerberg, Meta’s headcount rose 8% from a year ago to 78,450. Its family of apps and ads sold to customers generated 98.7% of 2024 revenues. Virtual Reality (VR) gaming consoles, games and glasses under its reality labs division generated most of the balance. 

Geographically, the US generated its biggest chunk of revenues in 2024 at 36%, followed by Europe at 23%, Asia-Pacific at 16%, China and the Rest of the World at around 11% each and Canada the balance of 3%.

For investors, US trade tariffs potentially resulting in reduced ad demand from Asia-based online retailers due to a jump in their product sale prices and reduced competitiveness, remains a threat. Increasing investments made by Meta in AI are not guaranteed to generate higher profits in future. Government concerns globally regarding possible misinformation potentially spread by social media persist, while a forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap.

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On the upside, Meta is pushing the use of its own AI tech to help tailor and target advertising for its customers. Meta’s current strong positioning in 3D, or virtual reality gaming and glasswear could be significantly improved given likely enhancements in AI. Active use of its apps continues to increase, while the previous commencement of a dividend payment and forecast dividend yield of 0.3% could increase its shareholder base to include those seeking a progressive annual payment. 

On balance, and while nerves regarding potential returns on huge investments have increased, a consensus analyst estimate of fair value above $800 per share suggests continued optimism about the longer-term. 

Positives

• Daily active users increasing
• Moves made to reduce misinformation

Negatives

• Uncertain economic outlook
• A series of scandals have previously impacted

The average rating of stock market analysts:

Buy