Will Meta Announce Record CAPEX? What Will the Social Media Giant's Results Show?

Meta is more than just a social media company. It is also an advertising behemoth and a company heavily invested in new technologies, encompassing not only AI but also augmented reality. For nearly three years, the company has consistently surpassed expectations with improving quarterly results. Will this trend continue?

Key Financial and Operational Expectations

• Revenue: $44.8 billion (expected 14.7% YoY growth) versus company guidance of $42.5-45.5 billion.

• EPS: $5.89 (expected 14.1% YoY growth) versus $5.16 a year ago.

• Advertising Revenue: $44.1 billion, with impression growth of 6.9% and price growth of 7.6%.

• Reality Labs: $386 million in revenue with an operating loss of -$4.9 billion.

• CapEx: Potential increase from current guidance of $64-72 billion; analysts expect $67.8 billion.

• Operating Margin: 38.3% on operating revenue of $17.2 billion.

• Daily Active Users: 3.42 billion users across the Family of Apps ecosystem.

• Threads: 350M+ registered users.

• Meta AI: Status of achieving 1 billion monthly active users.

• Implied Price Change: +/- 7.4% after results (historically +/- 5% reactions).

CapEx - Do Further Increased Expenditures Make Sense?

The biggest unknown remains CapEx for 2025. Meta already raised its Q1 guidance from $60-65 billion to $64-72 billion. There are strong indications that the company may report CapEx exceeding $72 billion. The reason for these increased expenditures is reportedly a bottleneck in computing power, which is said to impact advertising algorithms and AI. Additionally, supplier costs are rising, primarily from Nvidia and AMD. US tariffs are also expected to have an impact. The company will likely also point to increased demand for GPUs to train Llama models. It is also worth recalling that Alphabet's latest results showed a CapEx increase of $10 billion.

However, investors may be asking: Did the Q1 CapEx increase translate into a rise in actual computing power, or merely higher costs for the same equipment? CFO Susan Li admitted in Q1: "Even with the capacity that we're bringing online in 2025, we are having a hard time meeting the demand that teams have for compute resources."

A positive signal is that Alphabet, with its expenditure increase, did not mention tariffs as a key factor – two-thirds of the additional spending was allocated to servers, and one-third to data centers.

Reality Labs - A Persistent Profitability Problem

Reality Labs remains the biggest pain point for investors. With revenues of just $386 million (0.9% of total), it generates an operating loss of -$4.9 billion quarterly, resulting in an estimated annual loss of nearly $20 billion.

A positive aspect for the Reality Labs segment is the partnership with Andruil, which has led to a $100 million contract with the Pentagon. Meta has also opened a physical store for Reality Labs products in Burlingame, California. The company also plans for broader monetization of Ray-Ban AR glasses.

On the negative side, it's worth noting that the company does not present a clear path to profitability. R&D costs are rising, while revenues have stagnated, hovering between $300-400 million. It's also important to emphasize that while the company is one of the leaders in the augmented reality market, it faces competition from products like Apple Vision Pro.

If the company shows increased profitability in other segments, investors may continue to downplay Reality Labs. However, there is growing sentiment that a concrete plan to curb losses or significantly increase revenue from this segment is needed.

Valuation - Still Attractive Compared to Other Mag7 Companies

Meta appears relatively attractive among the Magnificent 7 companies. Its Forward EV/EBITDA and Forward P/E are the second lowest among the entire group. In terms of historical valuation metrics, the company is marginally more expensive than its 2-year average across all metrics.
Meta in historical context and compared to other Mag7 companies. Source: Bloomberg Finance LP
The Forward EV/EBITDA ratio remains elevated but is close to 1 standard deviation from its 2-year average. It's worth noting that this is one of the lowest ratios among Mag7 companies and other smaller tech firms. Meta continues to show very strong growth in results, so slightly elevated valuation metrics are not a concern. Source: Bloomberg Finance LP, XTB

Key Risks and Opportunities for the Company

Among the main risks for Meta is the abolition of the import tax relief (de minimis exemption), which is already leading to a decline in advertising spending by Asian e-commerce exporters in the US. An additional threat remains the rising inflation of CapEx investments – there is a risk that the company will have to pay increasingly more for the same computing power, which will limit the real growth of its infrastructure. The significant losses from Reality Labs also remain a painful point, currently showing no improvement in profitability despite high expenditures. Furthermore, increasing regulatory pressure in both Europe and the United States adds to these concerns.

On the other hand, Meta possesses significant growth drivers. The monetization of AI solutions (e.g., through Llama) is already increasing user engagement on its platforms, translating into greater advertising potential. Prospects also arise from the introduction of ads on Threads (with a base of over 350 million users in 30+ countries) and the dynamic development of WhatsApp Business, where advertising implementation to a user base of billions is just beginning. Additionally, continuous improvements in advertising algorithm efficiency through the use of AI can further strengthen the company's competitiveness and financial performance.

Summary - Cautious Optimism for Meta's Future

Meta has a nearly three-year track record of beating revenue consensuses. The company is developing more strongly in the advertising context, not only due to the use of AI technology but also within applications where advertising has been limited in recent years. The company's valuation is elevated but still appears attractive compared to other, even the largest, companies. What should be noted? The scale of the potential revenue beat, the size of CapEx, and any justification for its increase, or any specifics regarding Reality Labs. It is worth remembering, however, that even in the event of a slight disappointment, the company remains a leader in its segment of operations.

The company lost significant value during yesterday's session, and since its historical highs reached exactly a month ago on June 30, the company has lost approximately 6% of its value. Since the end of June, the price trajectories of Meta and US100 have completely diverged. Nevertheless, since the beginning of this year, shares have risen by approximately 20%, and over the past year, it's a gain of around 50%. An implied movement of approximately 7% after today's Wall Street session, from a level of around $700 per share, offers the chance for new historical highs or a drop to around $650 per share, to the lowest level in 2 months. Source: xStation5