Meta Stock Extends Rally into Second Day After Q1 Earnings Surprise

Meta Platforms, Inc. (META) shares surged 9% in after-hours trading following its Q1 2025 earnings report, which exceeded both revenue and earnings estimates. The rally continued into the second trading day, with the stock closing at $597.02 on May 2, 2025, before experiencing a dip to $520.27 on May 3. The results highlighted robust advertising growth, user engagement, and operational efficiency, but also underscored risks tied to regulatory hurdles in Europe.

The Earnings Surprise: A Strong Foundation

Meta reported $42.31 billion in revenue, a 16% year-over-year increase, driven by a 16% rise in advertising revenue to $41.39 billion. This outperformed the $41.24 billion consensus estimate. Adjusted earnings per share (EPS) soared to $6.43, a 37% jump from Q1 2024 and far exceeding the $5.22 estimate. The results reflected strong demand for its ad platforms, with average ad prices up 10% year-over-year, and user metrics showing 3.43 billion daily active people (DAP)—a 6% increase from the prior year.

Drivers of Growth

1. Advertising Dominance: The U.S. & Canada contributed $18.26 billion in ad revenue (+18.2% YoY), while Asia-Pacific grew 12.1% to $8.44 billion. The "Rest of World" category surged 19.1% to $5.38 billion, signaling expanding global reach.
2. AI Investment Paying Off: Meta’s Reality Labs, though still unprofitable, narrowed its loss to $4.2 billion on $412 million in sales, highlighting progress in AI-driven hardware and services.
3. User Engagement: Threads, Meta’s TikTok competitor, now has 350 million monthly users, while Meta AI, its AI assistant, boasts 1 billion monthly users—key milestones for its AI ecosystem.

Regulatory Risks and Headwinds

Despite the positive results, Meta faces significant challenges. The European Commission’s potential ruling on its ad-free subscription model—a feature of its Instagram and Meta apps—could force changes as early as Q3 2025. The company warned this could disrupt user experience and revenue in Europe, where it generates roughly 20% of its ad sales. Additionally, geopolitical tensions and rising capital expenditures ($64–72 billion annually for AI infrastructure) add to operational complexity.

Analyst Sentiment and Valuation

Analysts remain divided. The average 12-month target price of $705.66 (per 61 analysts) implies a +19.37% upside from the May 3 close of $520.27. However, GuruFocus estimates a $523.95 GF Value over one year, suggesting a potential -11.37% downside. This divergence reflects optimism about Meta’s AI-driven growth versus concerns over regulatory and macroeconomic risks.

Conclusion: A Stock of Two Stories

Meta’s Q1 results underscore its ability to deliver top- and bottom-line growth amid a competitive landscape. The 37% EPS surge and 16% revenue growth demonstrate resilience in advertising and AI innovation. However, the stock’s post-earnings volatility—from a 9% after-hours surge to a 12.9% drop on May 3—highlights investor caution.

While Meta’s long-term prospects hinge on its AI strategy and user retention, near-term risks—particularly in Europe—are critical. If Meta can navigate regulatory hurdles and sustain advertising momentum, its $705.66 target price becomes achievable. Yet, the company must also address capital allocation concerns and geographic diversification to offset regional risks. For now, investors are caught between optimism about its tech leadership and skepticism about execution in turbulent markets.

Meta’s journey from earnings surprise to stock volatility illustrates the fine line between innovation and uncertainty—a balance that will define its trajectory in the quarters ahead.