Meta's AI investments surge, showing boldness, yet potential tariff threats cast a shadow.
Snazzy Q1 Results for Meta, but Turbulent Horizon Ahead
After a thrilling first quarter, Meta's financials surpassed Wall Street estimates, with a 16% revenue surge and a colossal 35% increase in net income. Yet, the tech titan's success story is accompanied by a labyrinthine future due to escalating global trade frictions and regulatory hurdles in Europe.
Home Run Q1
In the March 2025 quarter, Meta bagged an impressive $42.3bn in revenue, representing a robust 16% year-over-year growth, and a net income of a staggering $16.64bn - a mesmerizing 35% leap. The earnings per share soared past analyst predictions, reaching $6.43, compared to the projected $5.28.
Ad revenue hit a high notch of $41bn, aided by a crop growth of 10% in the average price per ad and a 5% jump in impressions. Daily active users sailed to 3.43bn, a 6% boost across their 'family of apps.' For the June quarter, Meta projects revenue between $42.5bn and $45.5bn, just a smidgen above consensus estimates.
Analysts laud Meta's buoyant revenue guidance as an embodiment of resilience despite global tensions. In Matt Britzman's words, senior equity analyst at Hargreaves Lansdown, "Meta's shares are galloping higher in after-hours trading after a sterling set of results - and more importantly, a confident outlook."
AI Dynamics
Mark Zuckerberg, Meta's CEO, elucidated the firm's AI aspirations, as capital expenditures for this year have escalated, forecasting an investment range of $64bn- $72bn, marking an increase of around $5bn. This added investment will funnel into data centers and infrastructure, supporting the advancement of AI projects, including Meta's Llama large language models (LLMs) and AI assistant, nearing one billion monthly active users.
Despite AI's exciting potential, Meta will focus on fostering AI usage among app users, advertisers, and developers rather than directly monetizing AI this year, according to Debra Aho Williamson, founder of Sonata Insights.
Perils Ahead
While Meta astounded analysts, they warn the firm confronts looming challenges. Chinese e-commerce titans, such as Temu and Shein, significant advertisers on Meta's platforms, are opting to rein in ad spending. Experts caution this trend might persist, anticipating US tariff changes and the end of de minimis exemption.
Mindful of this situation, Meta's CFO, Susan Li, acknowledged the dip in ad spending from Asia-based exporters, labeling the situation "fluid." As analysts deliberated pre-earnings, CFRA’s Angelo Zino pinpointed that guidance would likely reflect a broader spectrum of outcomes, with defensible second-half visibility turning murky as tariffs amplify uncertainty.
However, some analysts anticipate Meta's extensive user base offers protection. "Meta is more resilient than peers," said Baird's Ted Mortonson, emphasizing the company's 3.4 billion monthly users. "The topline likely benefited from steady ad demand early in the quarter, before the 2nd April announcement of US tariffs stirred up a new wave of uncertainty," mused Lale Akoner, global markets strategist at eToro.
"While Q1 might remain unscathed by tariff-related consequences, Q2 could bring a different narrative," speculated Lale Akoner.
European Commission's pushback against Meta's no-ads subscription model also surfaces as a significant threat. With possible adverse effects on user experience and revenue, Meta advised that these impact may manifest as early as Q3, expressing optimism for more clarity by the next quarter's call.
Investing Amidst Uncertainty
Despite a steady 6% year-to-date dip in Meta stock, the shares soared over 5% post-earnings report. As investors adjust their focus from short-term profitability to Meta's long-term AI narrative, analysts urge the company to deliver disciplined execution and uphold its AI strategy to withstand volatility.
As Akoner, global markets strategist at eToro, reflects, "If Meta can show disciplined execution and reaffirm its AI strategy, the stock may continue to garner support even in a tumultuous environment."
AI-Driven Revenue Streams
As Meta continues to pour funds into its AI projects, such as Llama large language models and AI assistant, the firm aims to foster AI usage among app users, advertisers, and developers in the upcoming year, following the advice of Debra Aho Williamson, founder of Sonata Insights.
Financial Resilience Amidst Market Challenges
Despite the mounting pressures from US-China trade tensions and regulatory hurdles in Europe, analysts remain optimistic about Meta's resilience, with Baird's Ted Mortonson asserting that "Meta is more resilient than peers." As Meta strives to deliver disciplined execution and uphold its AI strategy, its extensive user base offers a buffer against volatility.
