Meta Platforms META is set to release its first-quarter 2025 earnings report on April 30. Here’s Morningstar’s take on what to look for in Meta’s earnings and stock.

Key Morningstar metrics for Meta Platforms

  • Fair Value Estimate: $770.00
  • Morningstar Rating: ★★★★
  • Economic Moat: Wide
  • Morningstar Uncertainty Rating: High

Earnings release date

April 30 after the close of trading

What to watch for in Meta Platforms’ Q1 earnings

  • Meta remains materially undervalued, trading at 4 stars. Our focus is primarily whether the firm can keep improving ad monetization to stave off investor concerns about the return on investment in large language models.
  • Management’s commentary on the potential impact of tariffs on digital advertising spend will be important. Alphabet’s GOOG management indicated a “slight headwind” in ad spending but did not highlight any materially significant impacts. We think it will be interesting to see how Meta’s ad demand is shaping up.
  • Capital spending plans for 2025 are also going to be under scrutiny. We suspect that the firm will stick with the $60 billion-$65 billion estimate for 2025 and potentially dial back capex in 2026 if the economy continues to deteriorate.
  • We don’t expect any commentary on antitrust cases, but maintain that despite the headline risk, the government’s case against Meta is materially weaker than its cases against Alphabet.
  • We expect a key valuation driver will be generative AI monetization, and clear progress on this front will certainly help investors re-rate the stock higher. Right now, it is trading close to a market multiple (20 times forward earnings).
  • Can the firm offset margin pressure from higher depreciation by enacting more operational efficiencies? Any commentary on this will be important.

Fair Value estimate for Meta Platforms

With its 4-star rating, we believe Meta’s stock is undervalued compared with our long-term fair value estimate of $770 per share, implying a 2025 adjusted price/earnings multiple of 30 times and an enterprise value/adjusted EBITDA multiple of 16 times.

We forecast Meta’s sales growing at a 12% compound annual growth rate for the next five years, spearheaded primarily by an increase in average revenue per user, with user growth also chipping in.

Drilling deeper, we believe Meta has a strong monetization opportunity ahead of it in Asia and the rest of the world. While we expect advertising sales from North America and Europe to grow steadily, we believe increasingly affluent and growing middle classes in Asia, Africa, and the Middle East will allow Meta to improve its ad monetization in those regions, lifting its overall top line.

Economic Moat Rating

We believe Meta merits a wide economic moat rating due to the firm’s intangible assets and the potent network effect around its Family of Apps business. While the firm’s Reality Labs segment continues to bleed cash, we believe Meta’s FoA business’ strong competitive advantages will likely allow the firm to generate returns in excess of its cost of capital over the next two decades.

We assign a wide moat rating to Meta’s Family of Apps business segment. We believe that the firm has built significant intangible assets, primarily via the customer data it collects and a potent network effect that has enabled Meta to be the most dominant social-media platform in the world.

Financial strength

We view Meta’s financial position as rock-solid. The firm closed out fiscal 2024 with cash and cash equivalents of $78 billion, more than offsetting its debt balance of $29 billion. While the firm’s investments in AI stand to increase its capital expenditure considerably over the next few years, the firm’s advertising business remains a cash-generating machine, churning out tens of billions of dollars of free cash flow annually.

Risk and uncertainty

We assign Meta an Uncertainty Rating of High. We believe Meta’s investments in unprofitable ventures such as generative AI and Reality Labs add a layer of uncertainty around its business, even as its large and stable advertising business continues to generate substantial cash flows in our forecast.

As we look ahead, we believe Meta’s considerable scale and intangible assets, such as its ad-targeting algorithms, will most likely enable the firm to maintain its dominance in the social media application space. While there are antitrust concerns around Meta’s business, with US antitrust regulators pursuing a monopoly case against the firm, we view an often-hypothesized breakup of Meta’s applications into separate businesses as unlikely. At the same time, there is headline risk that the firm faces as the case moves through the courts with a trial likely starting in 2025.

META bulls say

  • Meta’s core advertising business has benefited greatly through improved ad targeting and content recommendation algorithms as well as a secular increase in digital advertising spending.
  • Meta’s scale, with the majority of the world’s internet-connected users accessing its applications, allows it access to high-quality user data which it can package and sell to advertisers.
  • The firm has an opportunity to drive more ad inventory growth, leveraging new products such as Threads while also improving its monetization of ads on more nascent features such as Stories and Reels

META bears say

  • Meta’s investments in Reality Labs and generative AI stand to lose the firm billions of dollars annually, taking some of the shine off its overall business.
  • The firm has a monopoly case against it in the United States, which could force it to break up, severing some of the scale advantages it has built over time.
  • Meta has disproportionately benefited from increased ad spending by Chinese retailers like Temu and Shein. A slowdown in spending by these firms could hit Meta’s growth.

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