Key Insights: What to Look for in Meta’s Upcoming Earnings

When Meta ( META After the market closes on Wednesday, the company will report its 2025 first-quarter earnings. Wall Street will be paying close attention to indications of how well advertising is holding up, strategies for making money from generative AI, and efforts toward financial prudence despite challenges like geopolitical issues, antitrust lawsuits, and overall economic instability.

According to consensus estimates, Meta’s expected earnings per share (EPS) for the first quarter of 2025 stand at $5.21. This represents an 11% growth compared to $4.71 in the same period last year. The company projects revenues climbing by 13%, totaling approximately $41.2 billion. These gains are attributed primarily to improved advertising monetization, broadened income sources, and a growing worldwide user population.

However, recent adjustments in estimates advise prudence.

In the last month, the average expected EPS dropped from $5.33 to $5.21, with at least twelve analysts revising their yearly EPS projections for 2025 downward. Nonetheless, Meta has surpassed EPS predictions in each of the previous four quarters, and experts anticipate another strong showing when they release their Q1 financials.

Key areas to watch

One of the major focuses will be on Meta’s reported advertising revenue. After Google’s ( GOOGL After better-than-anticipated ad revenue figures, everyone is looking at Meta’s performance.

Jefferies ( JEF ) observed that more than 10% of Meta’s advertising revenue originates from companies based in China, which have allegedly reduced their advertisement expenditures because of escalating U.S.-China trade disagreements. Presently, U.S. duties on Chinese products stand at around 145%. These tariff issues may come up during Meta’s discussions; similar concerns were raised by Google executives mentioning a "mild headwind" in this sector. Consequently, Meta’s financial reports and conference calls could provide deeper insights into how these trading conditions impact worldwide ad spending.

As Meta advances towards its long-term goals in the metaverse and artificial intelligence, two key concerns for investors continue to be the financially troubled Reality Labs division and the company’s extensive generative AI projects.

TheReality Labs division—which houses the company’s virtual and augmented reality equipment, software, andmetaverseplatforms—remainsa significantfinancial burden. Inthe previousyear, thisunit reportedoperatinglossesof roughly$20billion withonlyaround$2billion ingrossrevenue.Jefferiesanalysts believe theremay besynergyopportunities,suggestingthatMeta mightadjust(possiblyreduce)itsexpendituresintheRealityLabsdivisiontoalignbetterwithcurrentmacroeconomicchallenges.

Morningstar ( MORN ) gave the firm a "high" uncertainty ranking — noting that Meta’s “unprofitable” expenditures on generative AI and Reality Labs introduce an additional element of unpredictability into their operations, despite the robust and consistent cash generation from its sizable advertising division anticipated in forecasts. If the company were to revise downwards or become more judicious with spending in these areas, it might be seen favorably by investors on Wall Street.

In the meantime, Meta’s initiative into generative AI—led by its open-source Llama series of large-language models—presents a potentially lucrative but currently under-monetized area. The upcoming first-ever LlamaCon event (occurring just before their financial report) aims to demonstrate how Meta is developing an open-source AI ecosystem meant to compete with products offered by rivals like OpenAI and Google.

Although Meta claims significant advancements in integrating artificial intelligence throughout its platforms—aiding content suggestions, management, and advertising targeting—the primary emphasis should shift towards immediate profit generation. Stakeholders will seek insights on AI-enhanced advertisement designs and marketing instruments, as well as the commercial uses of Llama and possible collaboration or leasing agreements. Additionally, they'll look for information regarding income from AI-related infrastructural developments.

Advancements in any of these areas might alleviate investors' worries regarding the high expenses associated with these initiatives. According to Morningstar, they anticipate that monetizing generative AI will serve as a significant factor influencing valuations. They also pointed out that tangible strides towards monetizing AI have the potential to boost the stock even more, considering it is presently trading close to its market multiple.

Meta’s anticipated capital expenditures are projected to stay within the range of $60-65 billion for 2025—assuming these expenses drop in 2026 should the economic conditions persist in being challenging. Shareholders will be seeking confirmation that the firm can adjust its expenditure plans flexibly throughout this year.

Antitrust challenges loom large

Meta continues to face significant antitrust issues that cloud its operations. Last week, the company appeared once again before a federal court in connection with a monopolization lawsuit which might result in separating Instagram and WhatsApp from Meta. According to allegations made by the Federal Trade Commission, Meta has unlawfully dominated parts of the social media market through acquisitions aimed at neutralizing growing competitors.

Morningstar indicated that the government’s case against Meta appears "substantially weaker" compared to those faced by Google. However, they recognized that ongoing regulatory oversight remains a significant element in assessing Meta’s potential risks over the longer term.

In terms of financial performance, the immediate effect of the legal proceedings for this quarter should be negligible. It's not anticipated that Meta will address the lawsuit during their earnings discussion, consistent with usual corporate protocol. Although the antitrust case likely won’t significantly influence the first-quarter profits, it might limit Meta’s capacity to maneuver strategically down the road, particularly concerning mergers or deeper consolidation within various business areas.

What’s next for Meta?

The tech behemoth's stock finished the week at $547.27 per share, marking a roughly 5% decline from the previous month. (At the same time, Amazon ( AMZN ) dropped 2% during that timeframe, whereas Google increased by 5%. According toMorningstar, Meta has substantial upward potential, suggesting a 30% increase from its present value. At the same time, bothWedbushandJefferiessupport optimistic outlooks forMeta, pointing out their strong advertising platforms and enhanced artificial intelligence strategies.Jefferiesevidencedthat thesecondquarterwillbringvariouschallenges,”yettheyconsider“Metaasthebestclimberintheirportfolio."

Even though certain sectors of Wall Street remain optimistic, several analysts advise proceeding with caution. Recently, Needham’s Laura Martin reaffirmed her "underperform" rating, expressing concerns about potential decreases in annual profits, profit margins, and cash flow, along with increasing capital spending and ongoing losses at Reality Labs.

Morningstar reiterated the warning but noted that the firm’s "broad economic moat" suggests Meta's revenues will expand at a 12% compounded yearly pace over the coming half-decade, driven mainly by an uptick in average revenue per user, complemented by additional user growth.

The analysts went on to say, "Upon further examination, we think Meta has significant potential for increasing revenue through ads in Asia and the global market. Although we anticipate steady growth in advertising revenues from North America and Europe, we also see that as the middle classes become more prosperous and expand in Asia, Africa, and the Middle East, this could enable Meta to enhance its advertisement income in these areas, thus boosting their total revenue."

CEO Mark Zuckerberg along with Chief Financial Officer Susan Li plan to address Meta’s earnings outcomes in a conference call at 5:00 p.m. ET. Considering the current state of the digital advertising landscape and lower-than-hoped-for anticipations, investors are preparing themselves for what might turn out to be significant market volatility following the release—some analysts predict potential fluctuations as high as ±8.3%.

Regardless of whether Meta exceeds expectations or issues conservative guidance, its earnings report will play a crucial role in shaping the narrative around how major technology companies are managing a complex blend of technological advancement, financial investment, and global political risks.

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