Minutes: Create a personalized Meta AI for everyone

Below is the $Meta Platforms(META.US) Q1 2025 earnings call Minutes. For financial report analysis, refer to《TikTok's Loss, Meta's Gain: Zuckerberg's AI Ambitions Expand》

I. Key Financial Metrics

1. Q1 total revenue reached $42.3 billion, up 16% YoY (19% at constant currency). Total expenses were $24.8 billion, a 9% increase YoY.

2. By category: Cost of revenue rose 14%, primarily driven by higher infrastructure costs and partner payments, partially offset by extended server depreciation periods.

3. R&D expenses grew 22%, mainly due to increased employee compensation and infrastructure costs.

4. Marketing and sales expenses increased 8%, primarily from professional service fees related to platform integrity efforts.

5. G&A expenses decreased 34%, mainly due to lower legal-related costs.

6. We ended Q1 with 76,800+ employees, up 4% QoQ. Operating profit was $17.6 billion with a 41% margin.

7. The effective tax rate was 9%, benefiting from excess tax benefits on stock-based compensation due to share price appreciation.

8. Free cash flow stood at $10.3 billion. We repurchased $13.4 billion of Class A shares and paid $1.3 billion in dividends. Total cash+securities reached $70.2 billion against $28.8 billion debt.

9. Segment Performance

(1) Family of Apps

Our app ecosystem continues growing, with an estimated 3.4 billion+ people using at least one app daily in March. Q1 Family revenue reached $41.9 billion (+16% YoY), with ad revenue at $41.4 billion (+16% YoY, +20% at constant currency).

E-commerce contributed most to ad growth geographically: Rest of World (+19%) and North America (+18%) led, followed by Europe (+14%) and APAC (+12%).

Total ad impressions grew 5% while average price per ad rose 10%, driven by APAC volume and improved advertiser demand partially offset by growth in less-monetized regions.

Other revenue grew 34% to $510 million, fueled by WhatsApp Business messaging and Meta Verified subscriptions. Family of Apps accounted for 81% of total expenses ($20.1 billion, +10% YoY), delivering $21.8 billion operating profit (52% margin).

(2) Reality Labs

Reality Labs revenue declined 6% to $412 million (Quest sales down, offset by Ray-Ban Meta AI glasses). Expenses grew 8% to $4.6 billion, resulting in $4.2 billion operating loss.

10. Outlook

(1) Advertising

Two key drivers: engaging experiences and monetization efficiency. Video watch time grew double-digits YoY in the US, aided by recommendation system improvements. We're innovating with LLMs in recommendations - early Threads tests showed 4% higher engagement.

New ad ranking model GEM (Generative Engine for Marketing) doubled efficiency, now scaling across services after showing 5% higher conversion rates in Facebook Reels tests.

(2) Reality Labs

Ray-Ban Meta AI glasses MAUs quadrupled YoY, with live translation now available in English/French/Italian/Spanish.

(3) Capital Allocation

Prioritizing infrastructure and talent. ~2,800 net hires in Q1 focused on monetization, AI, and Reality Labs. Raising 2025 capex guidance to $64-72 billion (from $60-65B) for AI data centers.

(4) Financial Guidance

a. Q2 revenue: $42.5-45.5 billion (1% FX tailwind)
b. 2025 expenses: $113-118 billion (prior $114-119B)
c. 2025 capex: $64-72 billion
d. Tax rate: 12-15%

(5) Regulation

EU's DMA ruling may require ad-free subscription model changes, potentially impacting Q3 European revenue (16% of 2024 total). Appealing the decision.

II. Management Discussion

Mark Zuckerberg highlighted five AI investment areas:

1. AI-powered ads: New short-video ad model boosted conversions by 5%; AI creative tool adoption up 30% QoQ.

2. Engagement: Recommendation improvements drove 7%/6%/35% more time spent on Facebook/Instagram/Threads (now 350M MAUs).

3. Business messaging: Testing AI agents for customer service/sales via WhatsApp/Messenger.

4. Meta AI: Nearly 1B MAUs across apps; standalone app launched for deeper personalization.

5. AI devices: Ray-Ban sales tripled; working with EssilorLuxottica on next-gen smart glasses.

Llama 4 models released with industry-leading context windows for personalized AI. "The pace of progress is astonishing - we're ensuring we build the infrastructure needed."

III. Q&A Highlights

On Llama 4: Optimized for low-latency voice interactions and personalization via long context windows. Larger "Behemoth" model will inform future efficient models.

On Meta AI: Primary use cases are information retrieval (search/analysis) and social interaction. WhatsApp shows strongest adoption.

On Q2 guidance: $3B range reflects uncertainty, including reduced ad spend from Asian e-commerce platforms ahead of US tariff changes.

On capex: Increased investment provides flexibility for AI/core infrastructure needs. Partnering with AWS/Azure for Llama hosting.

On coding AI: Still on track for "mid-level engineer" capability this year, scaling through 2026.

On EU DMA: Potential changes could degrade EU user experience; financial impact unclear (Europe was 16% of 2024 revenue).

On Reality Labs losses: Continuing investments for scale; targeting "tens of millions" unit sales for AI glasses.

Disclosures: Dolphin Research Disclosures