Investors remain apprehensive about the spending habits of Meta Platforms, as indicated by a decline in its stock even after posting impressive third-quarter results. Despite achieving record revenue that exceeded expectations, investor concern is centered on Meta’s announcement to increase capital expenditures, aiming to capitalize on opportunities in artificial intelligence (AI).
During the third quarter, Meta recorded a 19% increase in revenue, reaching $40.6 billion. This growth was driven by a similar rise in ad revenue to $39.9 billion, while Reality Labs saw a 29% increase in revenue to $270 million. The company’s operating income from apps was $21.8 billion, although Reality Labs incurred a $4.4 billion loss. Earnings per share grew 37% year over year to $6.03.
The company’s Family daily active people (DAP), which measures the logged-in users across its apps daily, rose 5% year over year to 3.29 billion on average in September, slightly below analyst predictions of 3.31 billion. Family average revenue per person climbed 12% to $12.29. Ad impressions increased by 7% yearly, and the average price per ad went up by 11%. Notably, growth in impressions was partly attributed to the Asia Pacific region.
Meta’s new app, Threads, reached nearly 275 million monthly users during the quarter, growing by approximately 1 million new users daily. Meta intends to add more features to enhance user engagement on topics of interest, with hopes that Threads could become a prominent social media platform. Concurrently, WhatsApp has shown growth in the U.S., registering 2 billion daily global calls. Meta has also noted favorable trends with young adults on Facebook in the U.S., and Instagram’s Reels continues to gain engagement, promoting original content.
For the fourth quarter, Meta projected revenue between $45 billion and $48 billion, with the midpoint surpassing analyst projections of $46.2 billion. Additionally, Meta raised its full-year capital expenditure forecast to between $38 billion and $40 billion, up from the earlier range of $37 billion to $40 billion. The company expects a notable increase in capex spending in 2025. CEO Mark Zuckerberg emphasized the importance of AI and infrastructure investments for future growth.
Meta highlighted that AI is enhancing user engagement and time spent on its platforms and aiding advertisers in improving ad effectiveness and conversions. The company’s Llama large language model (LLM) has witnessed exponential growth in tokens. It is currently training Llama 4 using over 100,000 Nvidia graphic processing units.
Mark Zuckerberg, founder and CEO of Meta, is known for prioritizing future growth, even if it requires substantial spending. Reality Labs currently incurs significant losses, and Meta plans to increase capital expenditures significantly next year to pursue AI growth. The long-term payoff of Reality Labs remains uncertain, but investments in AI are already yielding positive outcomes.
Historically, Meta has developed platforms focusing on long-term user engagement rather than immediate profitability, as demonstrated through Facebook and Instagram. Eventually, these platforms generated substantial revenue through advertising, forming the $1.5 trillion social media giant that Meta is today. Investors are encouraged to consider Meta’s strategic spending on future growth projects in light of its past successes under Zuckerberg’s leadership.
Meta is poised to benefit from its AI advancements, where users are reportedly spending more time on the platforms, attracting more advertising investment. From a valuation view, the company has a forward price-to-earnings ratio of about 23 based on 2025 analyst estimates, making it attractively priced.
Meta has demonstrated its capability as a long-term industry leader, and with its continued investment in future growth, it is anticipated to maintain this status. The current stock level presents a compelling opportunity for investors.
