Everbright Securities Meta Q1 2025 Performance Review: AI-Driven Meta Advertising Revenue Exceeds Expectations, Raises 2025 Capital Expenditure Guidance

According to Zhitong Finance APP, Everbright Securities released a research report stating that after the market close on April 30, Eastern Time, Meta (META.US) announced its Q1 2025 earnings. Q1 2025 revenue and net profit exceeded expectations, while Q2 2025 revenue guidance met expectations. In Q1 2025, the company's advertising revenue reached $41.39 billion (vs. consensus expectation +2.49%), a year-on-year increase of 16.2%, accounting for 97.8% of the company's total revenue. The Daily Active People (DAP) of the series of apps reached 3.43 billion, a year-on-year increase of 5.9%; the Average Revenue Per Person (ARPPU) reached $12.4, a year-on-year increase of 10.4%.

Key points from Everbright Securities:

Event: After the market close on April 30, Eastern Time, Meta announced its Q1 2025 earnings. As of 8:00 AM Beijing time on May 1, Meta's after-hours stock price rose by 4.91%.

Q1 2025 revenue and net profit exceeded expectations, while Q2 2025 revenue guidance met expectations. The company achieved operating revenue of $42.31 billion in Q1 2025 (vs. Refinitiv consensus expectation +2.22%, hereinafter referred to as consensus expectation), a year-on-year increase of 16.1%; the company guided Q2 2025 revenue to be between $42.5 billion and $45.5 billion, with a median of $44 billion, a year-on-year increase of 12.6% (with favorable exchange rate impact of about 1 percentage point), meeting consensus expectations; the company achieved a net profit of $16.64 billion in Q1 2025 (vs. consensus expectation +23.4%), a year-on-year increase of 34.6%, and expects total expenses for 2025 to be between $113 billion and $118 billion, a downward adjustment compared to the previous quarter's guidance of $114 billion to $119 billion.

Generative AI drives advertising revenue to exceed expected growth. In Q1 2025, the company's advertising revenue reached $41.39 billion (vs. consensus expectation +2.49%), a year-on-year increase of 16.2%, accounting for 97.8% of the company's total revenue. The DAP of the series of apps reached 3.43 billion, a year-on-year increase of 5.9%; ARPPU reached $12.4, a year-on-year increase of 10.4%. According to the Q1 2025 earnings call: 1) The new advertising recommendation model for Reels improved conversion rates by 5%, and the generative advertising recommendation framework doubled advertising efficiency, with a 30% increase in advertisers using AI creative tools; 2) Improved recommendation systems increased user engagement time on Facebook and Instagram by 7% and 6%, respectively; the introduction of Llama in the Thread recommendation system increased user engagement time by 4%.

Reality Lab revenue declined year-on-year. In Q1 2025, Reality Lab revenue was $412 million, a year-on-year decrease of 6.4%, with an operating loss of $4.21 billion.

Meta AI and AI glasses strategic commercialization gradually taking shape. 1) Meta AI: In Q1 2025, Meta AI's monthly active users (MAU) reached 1 billion, and the company launched a standalone Meta AI application, building an AI-based social information flow. The company expects to continue expanding its user base in 2026 but hopes to generate value-added payments and display recommended ads in Meta AI in the long term. 2) AI glasses: In 2024, sales of Ray-Ban Meta AI glasses doubled Upgraded 2025 Capital Expenditure Guidance. In Q1 2025, Meta's capital expenditure was $13.69 billion (vs consensus expectation -3.86%), a year-on-year increase of 103.7%. The capital expenditure guidance for 2025 has been raised from $60-65 billion to $64-72 billion, a year-on-year increase of 64.9%-85.6%, mainly for data center investments.

EU Regulation Poses Risks to European Business. The European Commission recently ruled that Meta violated the Digital Markets Act. The company needs to adjust its model, which may impact Q3 2025 revenue in Europe.

Earnings Forecast, Valuation, and Rating: Considering global macroeconomic uncertainties and EU regulatory risks, but with long-term AI advertising and recommendation algorithm optimization expected to drive accelerated growth in advertising revenue, we adjust the revenue forecast for 2025-2027 to $186.3 billion / $210.4 billion / $239 billion (compared to the last forecast -0.8% / -0.8% / +0.5%); the company's capital expenditure pressure on costs is manageable, but considering the increase in AI-related R&D expense ratio, we lower the net profit forecast for 2025-2027 to $63.7 billion / $71.7 billion / $83.7 billion (compared to the last forecast -0.6% / -4.4% / -2.8%). The current price corresponds to a PE of 22x / 19x / 17x, maintaining a "Buy" rating.

Risk Warning: Macroeconomic performance below expectations, uncertainty in tariff policies, EU regulatory risks