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3Q25 Update.
Meta reported 3Q25 and the stock dropped -8% after hours. Their core apps looked as healthy as ever with Daily Active People reaching 3.5 billion, +8% y/y. Instagram surpassed 3 billion MAUs for the first time ever and even Threads is gaining momentum with 150 million DAUs. (Twitter/ X is estimated to be around 290mn).
On the call Mark Zuckerberg noted that AI has driven 5% more time spent on Facebook and 10% on Threads. Video time spent on Instagram is up more than 30% from last year. Overall time spent on Facebook and Instagram is up double digits y/y. All of these improvements are largely attributable to AI advancements.
Revenue growth accelerated to +26%, +400bps from last Q. This was driven by Ad impressions growth of +14% (vs +11% last Q) and Ad prices increased +10% (vs +9% last Q).
They disclosed that Reels is run rating $50bn and the run-rate of ad revenue from end-to-end powered AI tools surpassed $60bn.
Expenses and capex continued to climb. Total costs and expenses were +32% y/y which drove operating deleveraging. This was driven by a +36% jump in R&D to $15.1bn as they increased spending on their Meta Super Intelligence Labs efforts.
Operating margins were 40%, down -300bps sequentially. FOA margins were similarly pressured and landed at 49% for the quarter. This quarter’s expenses were higher than the total year’s expense guidance of +22-24% y/y.
A non-cash adjustment from the One Big Beautiful Bill Act resulted in a $15.9bn tax charge. Excluding the tax charge, EPS would have been $7.25 for the quarter, +20% y/y.
LTM they earned $28.78 a share, backing out the one-time tax charge.
Business Commentary.
Usage, engagement, and ad efficacy are no longer issues. All of their AI spending is driving better ad recommendations and measurement, which is decreasing costs for advertisers. Just one of many proof points mentioned on the call is “advertisers who run lead campaigns using Advantages are seeing a 14% lower cost per lead on average than those who are not”. Advantages is the name of their suite of AI tools that they rolled out a couple years back and have since continued to improve.
Overall, it was another strong quarter of execution with strong revenue growth and improvements from AI materializing in their products.
While they continue to lose ~$4.4bn a quarter in the Reality Labs division, even this effort no longer seems as lost as it did a few years ago. With Apple’s Vision Pro not a clear leader in this space and Meta’s Ray-Bans a more popular formfactor, it isn’t impossible to think that Meta will continue to lead the space of AR/VR. The ROI of this investment may still be dubious, but at least fewer investors are probably writing this division off to zero.
However, one nagging question remaining…
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