Meta (META)

Social network operator Meta Platforms (NASDAQ:META) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 16.1% year on year to $42.31 billion. The company expects next quarter’s revenue to be around $44 billion, close to analysts’ estimates. Its GAAP profit of $6.43 per share was 23.1% above analysts’ consensus estimates.

Company Overview

Famously founded by Mark Zuckerberg in his Harvard dorm, Meta Platforms (NASDAQ:META) operates a collection of the largest social networks in the world - Facebook, Instagram, WhatsApp, and Messenger, along with its metaverse focused Reality Labs.

Businesses must meet their customers where they are, which over the past decade has come to mean on social networks. In 2020, users spent over 2.5 hours a day on social networks, a figure that has increased every year since measurement began. As a result, businesses continue to shift their advertising and marketing dollars online.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Meta’s sales grew at a decent 12.5% compounded annual growth rate over the last three years. Its growth was slightly above the average consumer internet company and shows its offerings resonate with customers.

This quarter, Meta reported year-on-year revenue growth of 16.1%, and its $42.31 billion of revenue exceeded Wall Street’s estimates by 2.3%. Company management is currently guiding for a 12.6% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12% over the next 12 months, similar to its three-year rate. This projection is above average for the sector and suggests its newer products and services will help sustain its historical top-line performance.

User Growth

As a social network, Meta generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.

Over the last two years, Meta’s daily active people, a key performance metric for the company, increased by 6.4% annually to 3.43 billion in the latest quarter. This growth rate is slightly below average for a consumer internet business and is largely a function of its already massive scale and penetrated market. If Meta wants to reach the next level, it likely needs to innovate with new products.

In Q1, Meta added 190 million daily active people, leading to 5.9% year-on-year growth. The quarterly print isn’t too different from its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns from the ads shown to its users. ARPU can also be a proxy for how valuable advertisers find Meta’s audience and its ad-targeting capabilities.

Meta’s ARPU growth has been exceptional over the last two years, averaging 13.3%. Its ability to increase monetization while growing its daily active people demonstrates its platform’s value, as its users are spending significantly more than last year.

This quarter, Meta’s ARPU clocked in at $12.34. It grew by 9.6% year on year, faster than its daily active people.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For social network businesses like Meta, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include customer service, data center, and other infrastructure expenses.

Meta’s gross margin is one of the best in the consumer internet sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 81.6% gross margin over the last two years. That means Meta only paid its providers $18.36 for every $100 in revenue.

Meta’s gross profit margin came in at 82.1% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Meta grow from a combination of product virality, paid advertisement, and incentives.

Meta is extremely efficient at acquiring new users, spending only 8.3% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation from scale, giving Meta the freedom to invest its resources into new growth initiatives while maintaining optionality.

EBITDA is a good way of judging operating profitability for consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a more standardized view of the business’s profit potential.

Meta has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 60.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Meta’s EBITDA margin rose by 10.8 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q1, Meta generated an EBITDA profit margin of 60.5%, up 2.9 percentage points year on year. The increase was encouraging, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Meta’s EPS grew at a spectacular 24.7% compounded annual growth rate over the last three years, higher than its 12.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Meta’s earnings can give us a better understanding of its performance. As we mentioned earlier, Meta’s EBITDA margin expanded by 10.8 percentage points over the last three years. On top of that, its share count shrank by 5.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Meta reported EPS at $6.43, up from $4.71 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Meta’s full-year EPS of $25.64 to shrink by 3.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Meta has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 31.5% over the last two years.

Taking a step back, we can see that Meta’s margin dropped by 3.4 percentage points over the last few years. We’re willing to live with its performance for now but hope its cash conversion can rise soon. If its declines continue, it could signal increasing investment needs and capital intensity.

Meta’s free cash flow clocked in at $10.33 billion in Q1, equivalent to a 24.4% margin. The company’s cash profitability regressed as it was 10 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

Big corporations like Meta are attractive to many investors in times of instability thanks to their fortress balance sheets that buffer pockets of soft demand.

Meta has an eye-popping $70.23 billion of cash on its balance sheet (that's no typo) compared to $28.83 billion of debt. This $41.4 billion net cash position is 3% of its market cap and shockingly larger than the value of most public companies, giving it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Meta beat analysts’ revenue, EPS, and EBITDA expectations this quarter. Overall, this print had some key positives. The stock traded up 3.3% to $565.50 immediately after reporting.

Updated: July 9, 2025 at 10:04 PM EDT

Before deciding whether to buy Meta or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Meta is a rock-solid business worth owning. First, the company’s revenue growth was good over the last three years, and analysts believe it can continue growing at these levels. And while its projected EPS for the next year is lacking, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. On top of that, Meta’s impressive EBITDA margins show it has a highly efficient business model.

Meta’s EV/EBITDA ratio based on the next 12 months is 16.6x. Looking across the spectrum of consumer internet companies today, Meta’s fundamentals shine bright. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $736.41 on the company (compared to the current share price of $732.70).