Morningstar

Meta Earnings: Ad Engine Firing on All Cylinders Even as AI Costs Mount

We are raising our fair value estimate for Meta stock; shares are undervalued.

Meta logo is displayed during the Viva Technology show.
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Securities in This Article
Meta Platforms Inc Class A
(META)

Key Morningstar Metrics for Meta Platforms

What We Thought of Meta Platforms’s Earnings

Meta META closed the second quarter of fiscal 2025 with excellent financial results which included sales growing 22% to $47.5 billion and operating margins rising 500 basis points to 43%. The firm’s capital expenditures for 2025 are expected to reach $69 billion, up from $68 billion previously estimated.

Why it matters: Meta’s primary ad business continues to churn out billions of dollars in free cash flow that the firm is spending on its artificial intelligence ambitions. We remain enthusiastic about Meta’s ability to drive better engagement and monetization on its social media platforms by leveraging AI tools.

  • While investors have been concerned this year about macro headwinds and their impact on Meta’s digital ad sales, we continue to view the firm’s ad business as resilient. We attribute this resilience to the firm’s superior return on ad spending that continues to attract customers.
  • Meta’s strategy of using AI tools to drive better engagement and monetization of its platforms continues to go strong. Meta saw more time spent on Instagram and Facebook, more advertisers using AI creative tools, and AI-improved ad recommendations leading to higher conversion rates.

The bottom line: We are raising our fair value estimate for wide-moat Meta to $850 from $770 as we factor in the strong quarterly performance as well as higher top-line growth due to continued AI-led improvements in user engagement and ad monetization.

  • With shares trading up sharply following the earnings result, we view them as marginally undervalued relative to our updated fair value.

Between the lines: With Instagram and Facebook well-saturated with ads, Meta has begun ads on Threads and WhatsApp as it looks to increase its ad supply, which should boost sales over time. We see this move as value-accretive as the firm increases its ad surfaces and monetization simultaneously.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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