Meta offers strong Q2 profit outlook despite external headwinds

• Company revises its full-year capital expenditure forecast upward significantly, reflecting its aggressive investment strategy.

Meta Platforms Inc, the social media behemoth, released its first-quarter financial results, surpassing analysts’ predictions on both revenue and earnings per share (EPS).

The robust performance, unveiled after market hours on Wednesday, highlights Meta’s continuing resilience amid a challenging macroeconomic landscape and industry uncertainties. However, the company also revised upward its full-year capital expenditure forecast significantly, reflecting its aggressive investment strategy.

Meta reported first-quarter earnings per share of $6.43 on revenue of $42.3 billion, marking an improvement from a year ago, when Meta posted EPS of $4.71 and revenue of $36.4 billion, signaling consistent growth despite external headwinds.

Advertising revenue, Meta’s primary income source, recorded $41.39 billion, surpassing projections of $40.5 billion. Nonetheless, the company’s Reality Labs division, focused on virtual and augmented reality innovation, posted a substantial operating loss of $4.21 billion, underscoring the financial risks associated with pioneering emerging technologies.

Share prices surge

Despite persistent fears over potential advertising revenue slowdowns amid tariff uncertainties and geopolitical tensions, Meta anticipates second-quarter revenue between $42.5 billion and $45.5 billion.

This guidance is notably optimistic compared to Wall Street’s forecast of $44 billion, indicating management’s confidence in their business model and revenue streams.

However, this positive outlook is tempered by the company’s decision to raise its full-year capital expenditure estimate to between $64 billion and $72 billion, an increase from the initial $60 billion to $65 billion range.

This rise suggests continued heavy investment in infrastructure, research and development, and expansion of technological capabilities, which while critical for long-term competitiveness, will exert pressure on short-term profitability.

Meta’s stock responded favourably to the earnings report, gaining over 4 per cent in after-hours trading. However, the stock’s year-to-date decline of more than 7 per cent and the recent levelling off after a 25 per cent gain over the past 12 months highlight the volatility and investor caution surrounding the company.

Ongoing legal battle

Adding complexity to Meta’s operational environment are the ongoing legal and regulatory battles with the Federal Trade Commission (FTC). The FTC alleges that Meta maintains an illegal monopoly over the personal social networking market, seeking divestiture of Instagram and WhatsApp—two major platforms acquired by Meta in what the commission labels a “buy-or-bury” tactic designed to stifle competition.

Negotiations between Meta and the FTC over a settlement have proven contentious, with a stark gap between Zuckerberg’s offers, reaching as high as $1 billion, and the FTC’s demand of $18 billion to $30 billion.

These regulatory challenges coincide with Meta’s political engagements, exemplified by CEO Mark Zuckerberg’s recent efforts to cultivate ties with former President Donald Trump.

Zuckerberg’s attendance at Trump’s 2017 inauguration and Meta’s $1 million donation to the inauguration fund reflect the company’s strategic approach to navigating the United States’ political landscape.

 Furthermore, Meta’s $25 million settlement with Trump, related to the platform ban following the January 6 Capitol events, indicates the firm’s complex relationship with political figures and controversies that can impact its public perception and policy environment.