Meta tops expectations; Guidance and expense uncertainty provides some pause

Meta Platforms (META) delivered a strong Q4 2024 earnings report, with earnings per share (EPS) and revenue both exceeding analyst expectations. The company reported EPS of $8.02, significantly above the consensus estimate of $6.78, marking a 50% year-over-year (YoY) increase. Revenue for the quarter came in at $48.39 billion, surpassing the consensus estimate of $46.98 billion and reflecting a 21% YoY growth. Advertising revenue, which remains Meta’s primary revenue driver, increased 21% to $46.78 billion, beating expectations of $45.65 billion.

Operationally, Meta showed impressive margin expansion. Operating income surged 43% YoY to $23.37 billion, with operating margin improving from 41% in Q4 2023 to 48% in Q4 2024. This demonstrates Meta’s ability to scale its revenue base while keeping costs under control. Total costs and expenses grew by only 5% to $25.02 billion, a notable achievement given the company's heavy investments in AI and infrastructure. One contributing factor to this was a $1.55 billion favorable adjustment related to legal proceedings.

Key engagement metrics also showed positive momentum. Meta's Family of Apps saw daily active people (DAP) reach 3.35 billion, reflecting a 5% YoY increase and slightly exceeding estimates of 3.28 billion. Ad impressions across Meta’s platforms rose 6% YoY, while the average price per ad jumped 14%, indicating strong monetization trends. Reality Labs, however, continues to be a drag, with revenue rising only 1.1% YoY to $1.08 billion, slightly missing the consensus estimate of $1.11 billion. Operating losses for Reality Labs expanded to $4.97 billion, slightly better than the estimated $5.1 billion loss but still a significant burden on Meta’s overall profitability.

Despite the strong Q4 numbers, guidance became a sticking point for investors. Meta refrained from providing full-year 2025 revenue guidance, adding uncertainty to its long-term outlook. The company guided Q1 2025 revenue in the range of $39.5 billion to $41.8 billion, with the midpoint slightly below the consensus estimate of $41.67 billion. Additionally, 2025 total expense guidance was set at $114 billion to $119 billion, well above the consensus of $108.01 billion. Higher infrastructure spending, particularly in AI, was cited as the primary reason for the expense increase. Meta also projected full-year capital expenditures of $60 billion to $65 billion, up significantly from $38 billion in 2024.

The market initially reacted negatively to the guidance, sending shares down 4% in after-hours trading. However, the stock quickly rebounded and surged to an all-time high of $715 before pulling back slightly during the earnings call. The reversal was largely driven by the strong EPS growth, which helps keep Meta’s valuation in check despite concerns about rising expenses. Investors also appeared to embrace Meta’s continued commitment to AI, which remains a major theme in the company’s long-term strategy.

During the earnings call, CEO Mark Zuckerberg addressed Meta’s AI roadmap, emphasizing the importance of open-source AI models. He specifically mentioned DeepSeek’s advancements in the field, highlighting the broader industry shift toward open-source standards. Meta’s focus on AI-driven monetization, including the integration of AI into ad targeting and content recommendations, was a key topic of discussion. CFO Susan Li reiterated that the company is investing heavily in infrastructure and custom silicon to improve AI efficiency and performance. However, she also admitted that Meta has "no idea on the level of investment required on a go-forward basis," adding to investor uncertainty about future costs.

In summary, Meta’s Q4 2024 earnings report showcased exceptional profitability and revenue growth, driven by strong ad demand and operating leverage. While the company’s guidance on expenses and capital expenditures raised some concerns, its commitment to AI investments and continued EPS expansion provided a counterbalance. The stock’s volatile reaction underscores the market’s divided sentiment—strong fundamental performance versus uncertainty around future costs. As Meta continues to navigate AI investments and platform monetization, investors will closely watch how efficiently the company manages its expenses while sustaining earnings growth.