Meta Platforms Gears Up for Q1 Earnings Report Amid AI Growth
Meta Platforms (NASDAQ: META) operates leading social networks such as Facebook, Instagram, Messenger, and WhatsApp, reaching over 3.3 billion users daily. Following a strong 2024 marked by earnings growth, the company plans to report its Q1 2025 financial results (ending March 31) on April 30.
Investors will gain insights into Meta’s expanding range of artificial intelligence (AI) initiatives, which are enhancing user experiences and improving content targeting.
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Currently, Meta’s stock price has declined by 24% from its all-time high following a broader market sell-off prompted by new tariffs imposed by President Donald Trump on trade partners. However, the current stock valuation appears attractive, suggesting a potentially favorable entry point for investors ahead of the April 30 report.
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Leading the Charge in AI
Almost all of Meta’s revenue comes from advertising on its social platforms. Longer user engagement translates to more advertisements seen, increasing the company’s earnings. AI plays a crucial role in enhancing user engagement; advanced algorithms assess user preferences for content on platforms like Facebook and Instagram, adjusting feeds accordingly.
By late 2024, CEO Mark Zuckerberg reported a notable uptick in user time spent on their platforms due to this strategy. Additionally, the launch of Meta AI—a virtual assistant integrated across all Meta’s networks—has been a significant advancement. This feature can answer diverse questions and participate in group chats, providing suggestions for activities or resolving debates among friends.
Meta AI reached 700 million monthly active users at the end of 2024, marking its position as a leading AI chatbot, with a remarkable 50% increase in just three months. Built on the Llama family of open-source large language models (LLMs), it outperforms competitors like OpenAI’s GPT-4.5, Anthropic’s Claude 3.7 Sonnet, and Alphabet‘s Gemini 2.0 across various benchmarks.
With its open-source approach, Meta can leverage the expertise of independent developers to enhance performance and identify bugs. Investment plans of up to $65 billion in data center infrastructure and chips this year will support these advancements. As Llama improves, features like Meta AI will likely become more efficient, driving user engagement even higher.
Expectations for Q1 Earnings
In 2024, Meta achieved a record total revenue of $164.5 billion, reflecting a 22% year-over-year increase—its fastest growth since 2021 and an acceleration from the previous year’s 16% rise. This success came while the company managed to keep operating expenses in check, rising only 8% year-over-year. The significant revenue growth allowed for a net income increase of 59% to $62.3 billion, equating to earnings of $23.86 per share (EPS).
However, analysts predict a notable slowdown in Meta’s earnings growth for 2025, with the consensus indicating an 11% increase in Q1 and just 4.6% for the full year. Two factors may contribute to this potential deceleration.
First, Meta anticipates a significant rise in expenses for 2025 due to its investments in AI infrastructure and technology. Although this may create short-term challenges, the potential for future monetization remains strong. Historically, Meta has effectively monetized new features like Stories and Reels; further rapid scaling of AI tools could lead to substantial revenue opportunities long-term.
Second, economic conditions may impact revenue. Prominent economists, including JPMorgan Chase CEO Jamie Dimon, foresee a possible recession. The new tariffs could escalate product prices, dampening consumer spending and possibly leading to reduced marketing budgets across companies, which would negatively affect Meta’s advertising revenue.
Notably, Goldman Sachs recently revised its recession forecast down to 45% after Trump announced a temporary pause on many of the recent tariffs, reinforcing the uncertainty in economic predictions.
Is Now the Right Time to Invest in Meta Stock?
The ongoing sell-off in the stock market presents an enticing opportunity for investors to acquire Meta stock at a favorable valuation. It is currently trading at a price-to-earnings (P/E) ratio of 21.3, which represents a 16% discount from its five-year average of 25.3.
Is Now the Right Time to Invest in Meta Platforms?
Meta Platforms, currently trading at a price-to-earnings (P/E) ratio of 21%, shows a notable discount compared to the Nasdaq-100 index, which has a P/E ratio of 27.2 as of now.
Data by YCharts.
Market Outlook and Earnings Performance
Investors are contemplating the upcoming earnings report scheduled for April 30. The expectation of slower earnings growth is not seen as a major deterrent given Meta’s attractive valuation. However, if economic slowdown continues beyond the first quarter, this could lead to greater concern among investors. Nonetheless, the complexity of the U.S. economy complicates investment decisions based on macroeconomic forecasts. Notably, even reputable figures at major investment banks have recently expressed varying opinions on future market conditions.
Given this environment, a long-term investment strategy might be the optimal move. Investors considering purchasing Meta stocks with a hold period of three to five years may find this approach appealing.
Past Performance and Future Potential
This isn’t the first instance of economic manipulation through tariffs. In 2018, former President Trump implemented tariffs contributing to a near-20% drop in the S&P 500. However, the stock market and economy rebounded robustly, ultimately achieving multiple new highs. Investors today might find themselves in a similar situation, with the potential for high returns if they invest in established companies like Meta despite current market uncertainties.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, sits on The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Goldman Sachs Group, JPMorgan Chase, and Meta Platforms. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
