Buy, Sell or Hold Meta Platforms Stock? Key Tips Ahead of Q1 Earnings

Meta Platforms META is set to report its first-quarter 2025 results on April 30.

META expects total revenues between $39.5 billion and $41.8 billion for the first quarter of 2025, indicating 8-15% year-over-year growth or 11-18% growth at constant currency (cc).

The Zacks Consensus Estimate for first-quarter revenues is pegged at $41.22 billion, indicating an increase of 13.08% from the year-ago quarter’s reported figure.

The consensus mark for earnings stands at $5.21 per share, down 2.3% over the past 30 days, suggesting growth of 10.62% from the figure reported in the year-ago quarter.
 

Meta Platforms, Inc. Price and EPS Surprise

Meta Platforms, Inc. price-eps-surprise | Meta Platforms, Inc. Quote

Meta Platforms’ earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 13.77%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Let’s see how things have shaped up for the upcoming announcement.

Strong Advertising to Aid META’s Q1 Results

META is riding on strong advertising revenue growth prospects. Meta Platforms’ advertising revenues are expected to benefit from strong spending by advertisers as they leverage its growing AI prowess despite tariff-related uncertainties. The Zacks Consensus Estimate for first-quarter 2025 advertising revenues is currently pegged at $40.44 billion, suggesting 13.5% year-over-year growth. 

Meta Platforms’ offerings — WhatsApp, Instagram, Messenger and Facebook — currently reach more than three billion people daily. Their staggering reach and increasing ad impressions (up 6% year over year in the fourth quarter of 2024) make META one of the most important players in the digital ad sales market, apart from Alphabet GOOGL and Amazon AMZN. Meta Platforms, Alphabet and Amazon are expected to absorb roughly 50% of the projected global ad spending by 2028.

META has been leveraging AI and machine learning to boost the potency of its social-media offerings, including WhatsApp, Instagram, Facebook and Threads. Effective usage of AI has been helping the company keep its users engaged. AI-driven feed recommendations have been a key catalyst. 

However, rising expenses related to investments in developing more advanced models and AI services are expected to keep margins under pressure. The Reality Labs business continues to burn cash, which doesn’t bode well for META’s first-quarter results. The Zacks Consensus Estimate for Family of Apps’ operating income is pegged at $19.97 billion indicating 13% year-over-year growth. The consensus mark for Reality Labs’ loss is pegged at $4.70 billion, wider than the year-ago quarter’s loss of $3.85 billion.

META Shares Outperform Sector, Lag Industry

META shares have declined 6.6% year to date, outperforming the Zacks Computer & Technology sector’s fall of 11% but lagging the Zacks Internet Software Industry’s 5.9% drop.

Meta Platforms shares have also outperformed most of its “Magnificent 7” peers, including Apple, Alphabet, Amazon, Microsoft, NVIDIA NVDA, and Tesla over the same timeframe. 

Microsoft, Amazon, Alphabet, Apple, NVIDIA and Tesla shares have declined 7.1%, 13.9%, 14.5%, 16.5%, 17.4% and 29.5%, respectively, on a year-to-date basis.

META Stock Performance

Meta Platforms’ stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.

In terms of the forward 12-month Price/Sales, META is trading at 7.23X, higher than the broader sector’s 5.59X.

Price/Sales (F12M)

META Leverages AI to Boost Growth

AI is heavily dependent on data, of which META has a trove, driven by its more than 3.35 billion daily users. Meta Platforms has been leveraging AI to improve the potency of its platform offerings, including WhatsApp, Instagram, Messenger and Facebook.

META’s growing footprint among young adults, driven by improving recommendations, boosts its competitive prowess. AI usage is making it a popular name among advertisers. Meta Platforms focuses on improving advertisers’ return on ad spending. Andromeda, its proprietary machine learning system, improves the performance of the company’s advertising system by delivering more personalized advertisements to viewers. 

The deployment of META’s deep neural network on the NVIDIA Grace Hopper Superchip across Instagram and Facebook applications has achieved more than 6% recall improvement to the retrieval system while delivering more than 8% ad quality improvement on selected segments.

Advantage+ is helping advertisers streamline campaign management and boost performance through more ads in the system for different audiences. AI is helping META retain advertisers who are leveraging its generative AI-powered image expansion, background generation and text generation tools to boost business. 

Meta AI usage continues to increase, with more than 700 million monthly actives. The company’s initiative to add updates that will help Meta AI deliver more personalized and relevant responses is expected to boost engagement.

Here’s Why META is a Hold Ahead of Q1 Results

META’s use of AI bodes well for its near-term and long-term prospects. However, a stretched valuation and growing regulatory issues are a concern.

Meta Platforms currently has a Zacks Rank #3 (Hold), suggesting that investors should wait for a favorable point to accumulate the stock. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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