• 3Q25 results exceeded our expectations, with revenue up 26% YoY to US$51.2bn and adj. PATMI increased 19% YoY to US$18.6bn from strong ad revenue growth. 9M25 revenue/PATMI was at 70%/87% of our FY25e forecasts.
• AI continues to deliver strong ad results, with better user engagement and ad performance leading to a 10% YoY increase in ad prices and 14% YoY growth in impressions. Instagram now has 3bn monthly active users (MAUs).
• We maintained ACCUMULATE rating but reduce the DCF target price to US$770 (prev. US$830). We raise our FY25e PATMI forecast by 14%, driven by lower-than-expected non-research and development (non-R&D) expenses. Our WACC remains at 7.5%, but we have reduced the terminal growth rate to 5.4% (from 6.0%) to reflect the impact of META’s significant CAPEX commitments in growing Superintelligent Lab. However, we think the investment size remains reasonable given the intense competition and the fact that META still has strong monetisation power through its product offerings.

• 2Q25 results were within our expectations. 1H25 revenue/PATMI was at 46%/59% of our FY25e forecasts due to strong ad revenue growth and resilient operating margin.
• AI continues to drive strong ad results, with better user engagement and ad performance leading to a 9% YoY increase in ad prices and 11% YoY growth in impressions. META AI now exceeds 1bn monthly active users (MAUs).
• We increase our FY25e total revenue forecast by ~3.5% due to META’s improved ad capabilities, which we expect to boost ad revenue. We maintain our ACCUMULATE rating, while our DCF target price is raised to US$830 (prev. US$720). We believe META’s ongoing investments in AI infrastructure and LLM development will enhance its core product offerings, further strengthening its ad business. We also expect these efforts to present monetisation potential in untapped segments, such as video, Threads, and business messaging. 

• META now has more than 3.4bn daily active users, guiding for CAPEX of US$64bn–US$72bn for FY25e to boost AI-related investment for long-term growth opportunities.
• AI driving better ad performance, leading to higher average ad prices (+10% YoY). Solid growth momentum in WhatsApp and Threads is predicted to have a bigger revenue contribution.
• We increase our FY25e revenue forecast by 5% due to resilient ad revenue and expanding margins. We maintain our ACCUMULATE rating, while our DCF target price is raised to US$720 (prev. US$640). Our growth rate assumption is also increased to 6% (prev. 5%). We believe META’s efforts to build stronger AI infrastructure and LLM development to utilise AI technology for product improvement fully present great monetisation opportunities in the long run.

• 3Q24 results outperformed, with META’s US$40.6bn revenue at the high end of its guidance range. META’s net margin grew by 5% points YoY, even with a 9% increase in headcount. 9M24 revenue/PATMI were at 73%/79% of our FY24e forecasts.
• AI driving better ad performance, leading to higher average ad prices (+11% YoY). Average price per ad growth accelerated for a fourth straight quarter.
• We increase our FY24e revenue/PATMI forecast by 2%/14% due to stronger Ad revenue and more cost efficiencies. We maintain our ACCUMULATE rating, while our DCF target price is raised to US$640 (prev. US$555). Our growth rate assumption is also increased to 5% (prev. 4.5%). Like GOOGL, we view META as a leader in AI, given its best-in-class AI infrastructure and LLM (Llama 3.2) and its ability to leverage AI technology to improve existing product monetization effectively.

• 2Q24 results outperformed, with META’s US$39.1bn revenue above the top end of its guidance range due to stronger ad growth. Net margin grew 10% points YoY. 1H24 revenue/PATMI were at 48%/52% of our FY24e forecasts.
• Ad revenue growth of 22% YoY was due to increasing ad impressions (+10% YoY) and prices (+10% YoY). Average price per ad growth accelerated for a third straight quarter.
• We increase our FY24e revenue/PATMI forecast by 2%/5% due to stronger Ad revenue. We maintain our ACCUMULATE rating, while our DCF target price is raised to US$555 (prev. US$510). Our WACC/growth rate assumptions remain unchanged at 7.1%/4.5%, respectively. Like GOOGL, we view META as a leader in AI given its best-in-class AI infrastructure and LLM (Llama 3), and its ability to leverage AI technology to improve existing product monetisation effectively.

• 1Q24 results outperformed slightly, with META’s US$36.5bn revenue at the top end of its guidance range due to an acceleration in ad growth. PATMI was above due to lower network delivery costs. 1Q24 revenue/PATMI were at 24%/25% of our FY24e forecasts. 1Q is historically the weakest quarter of the year.
• +27% YoY ad revenue growth a result of increasing ad impressions (+20% YoY) and prices (+6% YoY), with AI-related content driving greater user engagement.
• Higher CAPEX spending over the next two years as META develops more advanced models, and builds out its own silicon capabilities (MTIA Chip).
• We keep our FY24e revenue/PATMI forecast unchanged but increase FY24e CAPEX by 10% (~US$3bn) to account for higher AI infrastructure spending. As a result, our DCF target price is lowered to US$510 (prev. US$520), while we maintain ACCUMULATE. Our WACC/growth rate assumptions remain unchanged at 7.1%/4.5%, respectively.

The Positives

+ AI content driving greater engagement, leading to higher ad revenue. META continues to leverage its AI capabilities to improve engagement on its apps, indirectly leading to higher ad revenue (+27% YoY). META’s AI recommendation system now contributes roughly half of all content users see on Instagram, driving more value for advertisers. The demand-supply dynamics of digital ads are also improving, with META seeing healthy 20+% YoY growth in impressions and a 2^nd consecutive quarter of YoY advertising price increases. E-commerce companies remained the largest contributor to advertising revenue growth.

+ Positive momentum for Video/Reels. Video engagement continues to be a bright spot for META, contributing to >60% of viewing time on both FB and IG. Reels remain the key driver for this growth, with its strong ramp throughout FY23. Reels monetisation is also improving with META leveraging AI for more optimised ad loads and placements.

The Negatives

- Higher CAPEX spending moving forward. META is doubling down on scaling its AI capabilities to develop more advanced and compute-intensive models while also scaling its training and inferencing needs (custom silicon). As a result, FY24e CAPEX guidance was raised by ~US$4bn to a range of US$35bn-US$40bn. It expects this investment cycle to take at least 2 years to complete.

- Decelerating revenue growth for 2Q24e. META guided to 2Q24e revenue growth of ~18% YoY, implying a deceleration in growth as it: 1) laps a period of tougher comparisons due to China recovery from early-FY23, 2) slower increase in Reels’ advertising load after an initial aggressive ramp, 3) ~1% YoY impact from a strengthening USD.

• 4Q23 revenue was a slight beat on better-than-expected ad revenue. PATMI was a huge beat on higher operating leverage and stronger topline growth. FY23 revenue/PATMI were at 102%/109% of our FY23e forecasts. PATMI grew 3x YoY as expenses declined 8% YoY despite the revenue jump. Its 35% net margin was close to pandemic highs of ~40%.
• Reels finally contributing net revenue to META, driving >25% YoY growth in daily watch time across all video platforms, and were re-shared 3.5bn times daily.
• META is intensifying its capital investments, with plans on having compute worth about ~600K H100 GPUs by end-FY24e to support long-term AI development.
• We raise our FY24e revenue/PATMI by 3%/9% on stronger ad revenue and a leaner cost structure. We expect META to benefit from the recovery in digital advertising, and also to lean on AI for product improvement and efficiencies which we expect will turn into greater value for advertisers. Due to recent price movements, we downgrade to an ACCUMULATE rating from BUY, with a raised DCF target price of US$520 (prev. US$375) as we roll over an additional year of valuations. Our WACC/g assumptions remain unchanged at 7.1%/4.5%, respectively.

The Positives

+ Beat on both top and bottom line showing year of efficiency has played out well. Revenue of US$40.1bn beat our estimates by 7%, driven by a 3% FX tailwind, a 21% YoY growth in ad impressions, and a 2% YoY increase in average price per ad (CPM). CPMs grew for the first time in 2 years, driven largely by APAC+China demand. 4Q24 PATMI increased 3x YoY to US$14.0bn, as META benefitted from strong revenue growth and a much leaner workforce – headcount/total expenses were both down 22%/8% YoY, respectively.

+ Well-positioned to build the most advanced AI products with a stockpile of GPUs. META remains focused on building out its tech infrastructure, stating that it intends to have the equivalent of ~600K H100 GPUs (350K H100s + remaining 250K of other GPUs) worth of computing power by the end of FY24e. This is enough compute to support Reels, and another Reels-sized AI service. In addition, its open-source software infrastructure should help attract top AI talent to develop Llama models and other AI products.

+ Reels commentary positive, contributing net revenue to META. In 4Q23, Reels drove >25% YoY growth in daily watch time across all video types, with Reels re-shared 3.5bn times a day. Historically, Reels growth has been a headwind to overall revenue growth due to its lower monetisation levels. However, it is starting to contribute net revenue to META, with the company further expecting Reels to leverage a unified recommendation system across all META patforms to drive further views and engagement.

The Negative

- Raised top end of FY24e CAPEX guidance. META raised the top end of its CAPEX guidance for FY24e by US$2bn, to US$30bn-US$37bn, indicating it expects the need for higher levels of server capacity to support more intense AI product development. We raise our FY24e CAPEX by 3% as a result.

• 3Q23 results were within expectations. 9M23 revenue/PATMI were at 72%/73% of our FY23e forecasts. Earnings grew ~2.5x YoY as expenses declined despite the jump in revenue.
• Advertising trends continued to accelerate (24% YoY), with Reels monetisation no longer a headwind on ranking improvements and higher ad supply.
• Wide 4Q23e revenue guidance (13%-24% YoY) implying concerns over volatility in the Middle East. FY24e total expense growth reaccelerating to 10% YoY.
• We nudge our FY23e revenue estimates higher by 2% on better advertising revenue, and widen EBITDA/net margins by 1% on lower total expenses. We expect META to benefit from the recovery in digital advertising, and sustain 30+% margins given its lower cost-structure. We upgrade to a BUY rating from ACCUMULATE, with a raised DCF target price of US$375.00 (prev. US$360.00).

The Positives

+ Advertising trends continued to accelerate. META saw a huge acceleration in digital advertising revenue (3Q23: 24% YoY vs 2Q23: 12% YoY). Much of this acceleration was contributed by e-commerce companies, particularly from outbound Chinese advertisers trying to reach other markets like the US and Brazil. We expect these trends to continue improving given a typically strong 4Q holiday season, and a general recovery in the digital advertising industry.

+ Reels monetisation no longer a headwind. Reels – which has been a near-term headwind given its lower levels of monetisation, reached an inflection point. Monetisation levels for Reels finally reached net neutral to overall revenue as a result of ranking improvements and increasing ad supply. We think that this is significant given the incremental time spent on short-form video formats like Reels vs Feed/Stories. Moving forward, we expect Reels to be a modest tailwind to revenue growth as it continues to improve its monetisation levels.

+ Earnings grew ~2.5x YoY; highest margins in >2 years. PATMI increased 164% YoY, with net margins of 34%, its highest since 2Q21. Earnings also beat consensus estimates by 21% on higher revenue growth, and a leaner cost structure after significant cost-cutting measures over the last 12 months. Headcount was down -24% YoY.

The Negative

- Uncertain growth outlook for 4Q23e, increasing expenses into FY24e. META issued a fairly wide revenue guidance for 4Q23e, with a range of US$36.5bn-40bn (implying a 13%-24% YoY growth) due to concerns over increasing volatility led by geopolitical events in the middle east. It also guided to a reacceleration in total expenses growth for FY24e (10% YoY), citing increasing AI-related investments and payroll expenses.

ddle 

• 2Q23 results were in line with expectations. 1H23 revenue/PATMI at 47%/43% of our FY23e forecasts.
• Double-digit growth in advertising after 5 quarters, outbound China spending and increasing Reels monetisation the main drivers. Guided 3Q23e revenue growth of 20% YoY.
• ~US$40bn in accumulated losses from Reality Labs and no timeline to profitability. A 12% drag on operating margin.
• We increase our FY23e revenue/PATMI estimates by 3%/2% to reflect a slightly faster recovery in advertising, and improvements in Reels monetisation. Additionally, FY23e CAPEX is cut by 10% due to delays in projects and equipment deliveries. Our WACC assumption of 7.1% remains unchanged, and our terminal growth rate assumption is increased to 4.5% (from 3.5%) due to higher ad monetisation rates. We upgrade to ACCUMULATE, with a raised DCF target price of US$360.00 (prev. US$235.00).

The Positives

+ Double-digit ad growth for first time in 5 quarters. Advertising revenue grew 12% YoY in 2Q23, led predominantly by growth in outbound e-commerce spending from Chinese advertisers. Engagement on META’s family of platforms also saw healthy trends as ad impressions grew 34% YoY, with AI-recommendations also increasing user time spent on its platforms by 7%. On the products side, Reels monetisation saw improvements, with an annual revenue run-rate of US$10bn vs US$3bn a year ago. Reels saw >200bn daily plays, with >75% of advertisers using Reels Ads.

+ Positive forward guidance, continuation of advertising trends. 3Q23e revenue guidance implies a 20% YoY growth at the midpoint, a significant expected acceleration in revenue due to several factors: 1) improving advertiser demand; 2) Reels continuing to increase monetisation due to higher ad load and incremental time spent; 3) 3% FX tailwinds vs 1% headwind in 3Q22; and 4) weaker 3Q22 comps (-5% YoY). 4Q23e is expected to be similar to 3Q23e with advertising demand recovering, albeit with a larger FX tailwind.

The Negative

- Committed to metaverse vision, no timeline for Reality Labs profitability. Losses continue to mount for Reality Labs segment, with expenses related to the launching Quest 3 next year a big drag. Operating loss for 2Q23 stood at -US$3.7bn, with accumulated losses of around -US$40bn so far. Reality Labs is currently a 12% drag on operating margins, and we think it will continue to be a drag for the foreseeable future.

• 1Q23 revenue and earnings modestly beat expectations on higher Ad sales. 1Q23 revenue/PATMI at 23%/20% of our FY23e forecasts.
• Investments in AI driving improvements in ad tech, with Reels user engagement and monetization starting to ramp up.
• Optimistic outlook with 2Q23e revenue guidance of 7% YoY growth at the midpoint (11% YoY top-end), while reducing FY23e total expense growth by 5%. Expectations for a final wave of headcount cuts in May 23.
• We increase our FY23e revenue estimates by 3%, and our FY23e PATMI/EBITDA estimates by 11% to reflect better-than-expected improvements in cost savings. We maintain NEUTRAL due to recent stock price performance, with a raised DCF target price of US$235.00 (prev. US$200.00), a WACC of 7.1%, and a terminal growth rate of 3.5%.

The Positives

+ 1Q23 results beat on both top and bottom line. META issued 1Q23 revenue of US$28.6bn, 3% YoY (6% YoY in constant currency), beating estimates by about 3%, and the top end of its own 1Q23e revenue guidance (US$28.5bn). This outperformance was led by a 26% YoY increase in ad impressions, and strong spend from Chinese advertisers’ outbound spending. E-commerce and Healthcare were the 2 leading contributors to YoY ad revenue growth. 1Q23 EPS of US$2.20 also beat estimates by ~10% as the company continued to show improvements in cost efficiencies as expense growth slowed to 11% YoY (4Q22: 22% YoY) – Sales & Marketing expenses were down 8% YoY.

+ AI continues to drive improvement in ad tech. Investments in AI capabilities continue to be the backbone driving product improvements. AI recommendations drove >24% increase in user time spent on IG, with Reels monetisation efficiency up >30% on IG, and >40% on FB. With the help of AI, we do expect the gap between Reels monetization vs Feed/Stories to continue narrowing, with META mentioning that this could reach neutrality by early 2024.

+ 2Q23e guidance of 7% YoY revenue growth showing potential pickup in growth trends. META issued optimistic revenue guidance for 2Q23e, with a range of US$29.5bn-32bn indicating a 7% YoY growth taking the midpoint, and a 11% YoY growth taking the high end of the range – implying some acceleration in revenue trends, with FX expected to also be less of a headwind moving forward.

The Negative

- Profit declined YoY, though less than prior quarters. META announced 1Q23 PATMI of US$5.7bn, -24% YoY, as expenses continued to grow faster than revenue (10% YoY vs 3% YoY), and a slightly higher tax rate of 22% vs 16% in 1Q22. However, YoY decline in PATMI was significantly better than prior quarters (3Q22: -52% YoY, 4Q22: -55% YoY), with a resumption in earnings growth on the horizon due to significant cost efficiencies and FX headwinds neutralising.