Meta Platforms, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Community growth: Over 3.4 billion people use at least one of Meta's apps daily.
• AI opportunities: Focus on five areas - improved advertising, more engaging experiences, business messaging, Meta AI, and AI devices. For improved advertising, new ads recommendation model for reels increased conversion rates by 5%. For engaging experiences, time spent on Facebook, Instagram, and Threads increased. Business messaging is seen as next pillar with WhatsApp and Messenger having large user bases. Meta AI has nearly a billion monthly actives, and Ray-Ban Meta AI Glasses sales tripled.
• Ad monetization: Introduced Generative Ads Recommendation Model (GEM) for ads ranking, seeing 5% increase in ad conversions. Advantage+ suite of AI-powered solutions has strong momentum.
• AI model development: Released first Llama 4 models, focusing on general intelligence and efficient infrastructure.

Segment Performance

• Family of Apps: Q1 total revenue was $41.9 billion, up 16% year-over-year. Ad revenue was $41.4 billion, up 16% or 20% on a constant currency basis. Online commerce vertical was largest contributor to ad revenue growth. Other revenue was $510 million, up 34%, driven by business messaging and Meta Verified subscriptions. Expenses were $20.1 billion, operating income was $21.8 billion, representing a 52% operating margin.
• Reality Labs: Q1 revenue was $412 million, down 6% year-over-year due to lower Meta Quest sales, partially offset by increased sales of RayBan Meta AI glasses. Expenses were $4.6 billion, up 8% year-over-year, resulting in an operating loss of $4.2 billion.

Guidance

• Second quarter 2025 total revenue expected to be in the range of $42.5 billion to $45.5 billion.
• Full year 2025 total expenses expected to be in the range of $113 billion to $118 billion, lowered from prior outlook.
• Full year 2025 capital expenditures expected to be in the range of $64 billion to $72 billion, increased from prior outlook.
• Full-year 2025 tax rate expected to be in the range of 12% to 15%.
• EU regulatory impact: European Commission's DMA decision may require model modifications, potentially impacting European users and revenue as early as Q3 2025.

Risks

• EU Regulatory Risk: European Commission's decision that Meta's no ads subscription model is non-compliant with DMA may require modifications, potentially harming user experience and European business and revenue.
• Macroeconomic Uncertainty: Dynamic macro environment could impact revenue performance.

Question and Answer

Q: Brian Nowak from Morgan Stanley asked about Llama advancements and Meta AI usage.

A: Mark Zuckerberg discussed Llama 4 being designed for low latency and voice optimization, and Susan Li talked about Meta AI usage with top use cases including information gathering and social interactions, with WhatsApp and Facebook being key entry points.

Q: Eric Sheridan from Goldman Sachs asked about Meta AI standalone app.

A: Mark Zuckerberg said the standalone app is for faster access and built-out features, important in the US where WhatsApp isn't the primary messaging app.

Q: Justin Post from Bank of America asked about Q2 guide and CapEx.

A: Susan Li said Q2 guide factors in macro uncertainty, and CapEx is increased for data center investments to support AI efforts.

Q: Doug Anmuth from JPMorgan asked about CapEx breakdown and partnerships.

A: Susan Li said CapEx increase reflects data center investments and hardware cost uncertainty, and partnerships like with AWS and Azure are ongoing.

Q: Mark Shmulik from Bernstein asked about AI coding agents and expenses.

A: Mark Zuckerberg said AI coding agents are on track for mid-level engineer work by mid-next year, and Susan Li said lowered expense outlook reflects refined forecasts with continued investment in priorities.

Q: Ross Sandler from Barclays asked about AI capacity and ad ranking.

A: Susan Li said capacity is dynamic with efforts to alleviate constraint, and ad ranking improvements show strong conversion growth.

Q: Youssef Squali from Truist Securities asked about Meta AI competition and EU DMA.

A: Mark Zuckerberg said personalization and modalities are Meta AI's advantages, and Susan Li said EU DMA impact is too early to specify changes.

Q: Mark Mahaney from Evercore ISI asked about advertising verticals and Reality Labs.

A: Susan Li mentioned gaming and politics as soft verticals, and Mark Zuckerberg discussed Reality Labs focusing on efficiency and scaling AI glasses sales.