Meta delivers again — Why we see 29% upside from here

Key Points

• Meta Platforms is the world’s largest social media company, generating over 97% of its revenue from advertising across its suite of widely used apps, including Facebook and Instagram.

• Meta delivered first-quarter results that beat market expectations and provided a reassuring Q2 revenue outlook, easing investor concerns over a potential slowdown in advertising demand amid ongoing trade-related uncertainty.

• As the market leader in social media advertising, Meta is well positioned to benefit from the shift to digital advertising that is driven by factors such as growing social media usage, the rise of the creator economy, and increasing e-commerce integration on its platforms.

• Backed by a strong balance sheet, Meta is able to invest heavily in AI to enhance both its content recommendations and ad-targeting capabilities.

• Our target price for Meta is USD 810. This represents an upside of 29% (as of 23 May 2025).

Company overview

Meta Platforms (NASDAQ: META) is the world’s largest social media company with over 3.4 billion people using at least one of its apps each day. The company develops technological products that help people connect and share experiences, find and build communities, and grow businesses.

It reports on two segments: Family of Apps and Reality Labs.

Figure 1: Meta’s revenue is highly concentrated in advertising

Family of Apps: Meta’s suite of apps includes Facebook, Instagram, WhatsApp, Messenger, and Threads.

• Meta generates the bulk of its total revenue —over 97%—by selling advertising placements to businesses that can appear in either its own apps or on third-party apps and websites that it partners with. Businesses are either charged based on the number of impressions delivered (impression-based ads) or the number of actions, such as clicks, taken by users (action-based ads).

• Other revenue comprises revenue from

a) WhatsApp Business Platform – Businesses are charged a fee for each message sent to customers

b) Meta Verified subscriptions – Creators and businesses pay for a verified badge to enhance credibility and unlock additional features, such as dedicated customer support

c) Net fees received from developers using its payments infrastructure

d) Others

Reality Labs: This business segment is dedicated to building the technologies that will enable the company’s vision for the metaverse, where the future of online interaction will move beyond 2D screens toward immersive experiences involving Augmented Reality (AR), Virtual Reality (VR) and Mixed Reality (MR).

• Offerings under VR and MR include Meta Quest VR headsets as well as Horizon Worlds, a social platform for the metaverse.

• Its AR product lineup includes the Ray-Ban Meta AI glasses, which allow users to perform a range of hands-free tasks using voice commands, such as translating conversations in real time, identifying landmarks, recording videos, and listening to music.

As a relatively new and forward-looking business segment, Reality Labs generates minimal revenue for the company. In fact, it remains deeply unprofitable, reducing the company’s operating profit by USD 17.7 billion in 2024. The financial drag from continued investments in Reality Labs is expected to persist in the foreseeable future, with meaningful returns likely only materialising over the next decade.

Unlike its reliance on advertising, Meta’s revenue sources are spread across different geographic regions, reducing dependence on any single market (Figure 2). To be clear, revenue by geography is reported based on the billing addresses of advertisers rather than the locations of the users who view the ads.

Figure 2: Meta’s revenue breakdown by geography

Meta delivered solid Q1 results while offering an encouraging outlook

Meta shares have outperformed the S&P 500 year-to-date (6.87% vs 1.62%), supported by strong first quarter results. Q1 revenue grew 16% year-over-year (YoY) to USD 42.3 billion, surpassing consensus estimates of 41.4 billion. This was driven by a 16% YoY increase in Family of Apps ad revenue and a 34% rise in Family of Apps other revenue.

Meanwhile, Reality Labs revenue declined 6% YoY, primarily due to weaker Meta Quest sales. However, the impact was partially offset by stronger demand for the Ray-Ban Meta AI glasses, which saw monthly active users increase more than fourfold from a year ago. Despite Reality Labs reporting an operating loss of USD 4.2 billion, Meta’s overall performance exceeded expectations, with earnings per share (EPS) coming in at USD 6.43 versus analysts’ expectations of USD 5.25.

The company expects Q2 revenue to be in the range of USD 42.5 to USD 45.5 billion, in line with market expectations of USD 44 billion. This has helped ease investor concerns about a sharp slowdown in advertising demand amid ongoing tariff-related uncertainty.

Table 1: Meta’s 1Q25 financial highlights

	1Q25	1Q24	% Change
Revenue	42,314	36,455	16%
Operating Income	17,555	13,818	27%
Net Income	16,644	12,369	35%
Earnings per Share	6.43	4.17	31%
Source: Meta 1Q Press Release. Data as of 30 Apr 2025. Figures are in USD millions except percentages and per share amounts.

Meta leverages AI to cement its dominance in social media advertising

As a major player in the advertising industry, Meta benefits significantly from the broad shift from offline to online advertising. According to Statista, digital’s share of total advertising spend has risen from 54.3% in 2019 to 72.7% in 2024, as internet penetration increases over the years and consumers spend more time online, diverting ad dollars from traditional media such as TV and print.

Within digital advertising, social media advertising has likewise witnessed strong growth in ad spending (Figure 3). According to Sprout Social, ad spending on social media is expected to grow at a compound annual growth rate (CAGR) of 9.37% from 2025 to 2030. This is driven by factors such as rising social media adoption and the growth of the creator economy, where brands increasingly collaborate with influencers to create content that can be amplified through paid advertising. Additionally, the introduction of e-commerce features such as Instagram Shop and TikTok Shop has transformed social platforms into direct sales channels, encouraging brands to increase ad spending.

Figure 3: Meta is a beneficiary of increasing social media advertising spend

Facebook and Instagram are the preferred social media advertising platforms among marketers in the US, accounting for over 60% of social media ad spend—a trend that extends to many other countries, including Australia, Germany, Canada, and Brazil (Figure 4). This preference is due to the platforms’ vast user base and strong return on ad spend (ROAS).

Over the years, Meta has amassed a vast amount of user data, including demographics, how users interact with content on its platforms, and their activity on partner websites and apps. This rich dataset, combined with its sophisticated algorithms, enables Meta to deeply understand user preferences and deliver highly targeted content and advertisements.

Figure 4: The majority of social media ad spend goes to Facebook and Instagram

Rather than resting on its laurels, Meta is investing heavily in AI and integrating the technology across its products and services to further enhance its algorithms. Between November 2024 and April 2025, improvements to its recommendation systems led to a 7% increase in time spent on Facebook, a 6% increase on Instagram, and a remarkable 35% increase on Threads.

Besides improving content recommendations, Meta is also leveraging AI to help users create better content. For example, it recently launched a standalone app called Edits, which enables creators to animate still images and remove video backgrounds with ease. By boosting user engagement with better content, Meta will be able to continue growing its user base, which in turn enhances its appeal to advertisers.

Furthermore, Meta is continually enhancing its ad systems to improve the ROAS for advertisers. Ad recommendations using its new Generative Ads Recommendation model (GEM) has resulted in up to a 5% increase in ad conversions on Facebook Reels in the first quarter of this year. Meta has also introduced generative AI tools such as image generation to help advertisers develop ad creatives.

These advancements are translating into tangible business results. The growing effectiveness of Meta’s ad platform has driven steady increases in its average price per ad, reflecting strong demand and advertisers’ willingness to pay more (Figure 5). This pricing power continues to fuel the company’s revenue growth.

Figure 5: Rising average price per ad reflects Meta’s pricing power

Meta’s capacity to invest aggressively in AI is underpinned by its robust balance sheet. With USD 70.2 billion in cash and marketable securities and just USD 28.8 billion in debt, the company enjoys a level of financial flexibility that few rivals can match, giving it a clear edge to extend its competitive lead. In its latest earnings call, Meta raised its capital expenditure (CAPEX) guidance from USD 60–65 billion to USD 64–72 billion, citing additional investments in data centers to support its AI initiatives and higher expected infrastructure hardware costs driven by tariffs imposed under the Trump administration.

Key investment risks

Strong dependance on advertising revenue

Meta’s heavy reliance on advertising revenue makes it vulnerable to any slowdown in advertising due to macro headwinds. The company recently reported reduced spend in the US from Asia-based exporters – likely including Chinese e-commerce giants Temu and Shein – following the introduction of reciprocal tariffs on China by the US and the removal of the de minimis exemption.

While the current tariff environment will likely lead to reduced ad spending, we expect Meta to be relatively resilient compared to smaller players such as Snapchat or X. During turbulent times, marketers tend to reduce experimental spending and shift spending toward proven, safer bets like Meta. With its massive user base and strong track record of delivering competitive results, Meta should continue to be the go-to choice for advertisers.

Competition from TikTok and YouTube

Meta CEO Mark Zuckerberg has identified TikTok and YouTube as the company’s primary competitors. Although they are not conventional social networking platforms like Snapchat or LinkedIn, TikTok and YouTube compete directly with Facebook and Instagram by capturing a large share of user attention through engaging video content.

In fact, according to Social Insider, TikTok has a higher engagement rate of 2.5% versus Instagram’s 0.50% and Facebook’s 0.15%. Meta will need to further improve its algorithms to ensure its platforms remain competitive in retaining user engagement and attracting advertiser spend in an increasingly video-driven landscape.

While a TikTok ban in the US would undoubtedly benefit Meta, it appears unlikely for now, as Trump has expressed support for keeping the app operational and has twice delayed the ban to give ByteDance time to spin off TikTok’s US operations into a new, US-based entity.

Legal and regulatory

Meta, like other Big Tech companies, regularly face regulatory pressure related to data privacy and antitrust issues.

On 23 April 2025, Meta was fined €200 million for breaching Europe’s Digital Markets Act that requires it to give consumers the choice of a service that uses less of their personal data. As Meta’s proposal for a “Consent or Pay” advertising model was rejected by the European Commission, it will now need to make modifications to its existing model which could negatively affect user experience and potentially reduce its revenue from the European market.

The Federal Trade Commission has also accused Meta of illegally monopolising the social media market through its acquisitions of Instagram in 2012 and WhatsApp in 2014. The antitrust trial is expected to conclude in June, and if found guilty, Meta could be forced to divest both platforms. However, we believe this outcome is unlikely, as Meta faces stiff competition from platforms like TikTok and YouTube — weakening the case that it holds monopoly power.

Valuation remains attractive for Meta

Meta has been incredibly resilient this year and is one of only two Magnificent Seven stocks to post positive returns in 2025 (Microsoft being the other). While we expect earnings growth to slow this year due to reduced ad spending, we expect growth to pick up in 2026 and 2027 as trade-related uncertainties ease.

The stock is currently trading at 18X projected 2027 earnings, below its 10-year historical average of 24X. Based on an assigned fair PE of 23X, we derive a target price of USD 810 for Meta, implying a 29% upside from its last trading price of USD 627.06 on 23 May 2025.

Table 2: Projections for Meta’s earnings

Meta Platforms	2024	2025E	2026E	2027E
Earnings Per Share (EPS)	24.09	26.36	29.69	35.20
Earnings Growth YoY	40.63%	9.42%	12.63%	18.56%
PE Ratio (X)	24.31	23.79	21.12	17.81
Target Price (based on a fair PE of 23X)				810
Upside Potential				29.1%
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of 23 May 2025

Figure 6: Share prices are driven by earnings growth in the long run

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds a position in Meta Platforms.

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Meta delivers again — Why we see 29% upside from here

Key Points

Company overview

Figure 1: Meta’s revenue is highly concentrated in advertising

Figure 2: Meta’s revenue breakdown by geography

Meta delivered solid Q1 results while offering an encouraging outlook

Table 1: Meta’s 1Q25 financial highlights

Meta leverages AI to cement its dominance in social media advertising

Figure 3: Meta is a beneficiary of increasing social media advertising spend

Figure 4: The majority of social media ad spend goes to Facebook and Instagram

Figure 5: Rising average price per ad reflects Meta’s pricing power

Key investment risks

Valuation remains attractive for Meta

Table 2: Projections for Meta’s earnings

Figure 6: Share prices are driven by earnings growth in the long run

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