Second-quarter revenue rose 28% to $60.8bn ($60.2bn expected). The number of people using at least one of Meta's apps on a daily basis rose 3% to 3.60bn. Ad impressions increased 14%, while average price per ad rose 12%.
Operating income fell 8% to $18.8bn ($21.8bn expected), with margins declining from 43% to 31%, largely driven by one-off legal and severance-related charges.
Free cash flow fell to $0.8bn, from $8.5bn in the same period last year, as capital expenditure rose to $31.1bn. Net debt, including lease liabilities, was $22.1bn.
Third-quarter revenue is expected to be in the range of $61-64bn. Full-year capital expenditure guidance now stands at $130-145bn (previously $125-145bn).
The shares fell 6.2% in after-hours trading.
Our view
Meta delivered a strong underlying quarter, obscured by one-off legal and severance charges. Revenue beat expectations, advertising growth remained healthy, and margins were broadly on track once those charges were stripped out. The market focused on the earnings miss and lack of tangible new revenue streams, but the core business continues to show clear momentum.
Advertising remains Meta’s engine room, spanning Facebook, Instagram, WhatsApp and Threads. AI is improving content recommendations and ad targeting, lifting engagement, sales and returns for advertisers. That supports ad volumes and pricing, while reinforcing the value of Meta’s enormous user base.
The main concern remains the scale of investment. Full-year capital expenditure guidance now stands at $130-145bn, with only the bottom end moving higher. That was slightly reassuring, although consensus is still below both our numbers and the high end of guidance. Cash flow is strong, but it's going to be flexed, and more, to pay for this buildout.
The debate is shifting from whether AI helps the existing ad business to whether it can create meaningful new revenue. Management highlighted opportunities across business agents, subscriptions, consumer assistants, messaging, payments and wearables. Other revenue is growing quickly from a small base, but investors still lack the hard evidence needed to value these opportunities confidently.
Meta doesn’t need every initiative to succeed. A handful of meaningful winners could justify the investment, given its access to billions of consumers and millions of advertisers. But management needs to show product traction, explain how these services will make money and connect today’s spending with future returns.
Data centre investment remains focused on improving Meta’s own platforms, rather than building the external cloud business some investors had hoped for. Selling compute would boost near-term cash flows and likely be well received by the market. But Meta is choosing a more difficult path, focusing its compute inwards, on projects with potentially higher, more durable returns. We like the ambition and think this is exactly what a growth company should be doing.
All in, we are positive on Meta for two reasons. First, its earnings multiple, now at a decent discount to the wider market, looks to reflect all the risks while giving little credit to the potential benefits, a trend we think can reverse. Second, even at the current earnings multiple, simply delivering the expected earnings growth should provide a powerful tailwind.
The risks are equally clear. Investors need to take a more positive view of Meta’s investment plans for the earnings multiple to move higher, while the core business engine must keep firing. Neither is guaranteed.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Meta’s overall management of material ESG issues is average.
Meta’s dual class share structure continues to limit the influence of minority shareholders. The group also remains exposed to material regulatory and legal risks, particularly around data privacy, competition and platform safety.
Recent adverse rulings in California and New Mexico have increased the legal risk around claims that Meta’s platforms harm younger users and are addictive by design. Financial penalties look manageable, but wider litigation, stricter age checks or required product changes could raise costs and weigh on engagement and advertising growth.
The author holds shares in Meta.
Meta key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.