Meta Q1 2025 earnings call: AI delivers tangible business results

AI is a core driver for social media giant Meta. It enhances both advertising effectiveness and user engagement by delivering more targeted and efficient ad solutions. At the same time, users benefit from more interactive and personalized content, creating a more relevant and consistent experience across Meta’s platforms. Key AI initiatives such as the development of long context windows and improvements in ad relevance are positioning Meta for continued growth in the digital advertising market.

Revenue increased 16.1% year-on-year to US$42.3 billion in Q1 2025, driven by ad revenue growth from its Family of Apps from the e-commerce vertical. In general, advertising growth was healthy across most verticals during the quarter except for gaming and politics. In Q1 2024, there were many game promotions from China-based advertisers as well as spending on U.S. elections.

Reality Labs revenue contracted by 6.4% year-on-year during the quarter and was dragged down by lower Meta Quest sales and partially offset by higher sales of Ray-Ban Meta AI glasses. As a result, the segment’s operating loss widened from US$3.8 billion in Q1 2024 to US$4.2 billion in Q1 2025.

Capital expenditure amounted to US$13.7 billion in Q1 2025, driven by spending in servers, data centres and network infrastructure. The company benefited from extending the useful lives of its servers. Its depreciation expenses only increased by 15.6% year-on-year to US$3.9 billion in Q1 2025, which is slower than the 40.6% year-on-year growth in Q4 2025. The growth rate in the depreciation expense in 2025 is expected to slow from that of 2024. Overall operating margin improved from 37.9% in Q1 2024 to 41.5% in Q1 2025. The management spent US$13.4 billion on share buybacks and distributed US$1.30 worth of dividends to shareholders.

Meta is strategically investing in proprietary AI infrastructure (multimodal, low-latency custom models like Llama 4). They are focused on improving ad performance through AI-driven ranking and recommendation models like Generative Ads Recommendation, which is significantly more efficient and drives higher conversion rates (e.g., 5% lift in Facebook Reels). This focus on relative performance is critical given their direct response advertising business.

Meta’s Advantage+ suite and tools like Incremental Attribution (46% lift in incremental conversions in tests) are further boosting ad effectiveness and providing better ROI for advertisers. The number of advertisers using AI creative tools grew by 30% in Q1 2025. Meta is also deepening the integration of its AI tools with third-party analytics like Google Analytics.

Revenue in Q2 2025 is expected to hover between US$42.5 billion and US$45.5 billion including a 1% foreign exchange tailwind. As Meta added about 2,800 employees during the quarter, employee compensation is expected to increase in the coming quarter. Capital expenditure in 2025 is expected to range between US$64 billion and US$72 billion, driven by investments in data centers and infrastructure hardware to support core business needs like advertising and recommendation systems followed by generation AI. These investments are flexible and agile. To overcome the existing capacity-constrained situation, more infrastructure will be available in 2025 and 2026.

Family of Apps

More than 3.4 billion people now use at least one of Meta’s apps daily in March. In Q1 2025, Rest of World (outside North America, Europe, and the Asia-Pacific, APAC) and North America witnessed 19.1% and 18.2% growth in ad revenue. The total number of ad impression grew 5% especially in the APAC during the quarter. The average price per ad increased 10% in Q1 2025, driven by higher advertiser demand and improved ad performance. This increase was partially offset by growth in ad impressions from regions and surfaces with lower monetization rates. Conversions grew faster than ad impressions because of higher conversion rates and better ad ranking/modelling.

Other revenue increased 34.2% year-on-year to US$510 million in Q1 2025, driven by business messaging on WhatsApp as well as Meta Verified subscriptions. Meta also launched video editing app Edits in April 2025.

Facebook and Instagram

User engagement across Facebook and Instagram continue to grow, particularly from video content as highlighted by Vice President of Finance Chad Heaton. There was year-on-year double-digit growth in video time spent across the two apps in the U.S. in Q1 2025. The management also noted short-term engagement boosts on the two apps when TikTok faced a temporary U.S. ban.

As Meta enhances its recommendation systems and more businesses advertise on Facebook and Instagram Feeds, the management expects to see more gains in 2025. Building on previous success, improved AI recommendations have spurred user engagement, resulting in 7% and 6% more time spent on Facebook and Instagram respectively over the past six months.

WhatsApp and Messenger

WhatsApp has over 3 billion monthly active users, with more than 100 million in the U.S. As the Status feature on WhatsApp becomes more popular, Meta continues to invest in the Updates tab. iMessage is WhatsApp’s biggest competitor in the U.S.

More than a billion people use Messenger each month. The app’s popularity is surging as the volume of messages sent across Instagram and Messenger daily is comparable.

Business messaging is more established on WhatsApp and serves as a potential growth driver on Messenger. It is particularly viable in countries like Thailand and Vietnam where the labor cost is low. The feature will be profitable with the help of AI in developed countries as AI business agents provide customer support and sales in the future.

Threads

Threads continues to demonstrate strong user engagement growth. It now has over 350 million monthly active users and is on track to be a major social media platform. Users have increasingly spent more time on the app especially since the integration of Llama into its recommendation systems at the end of last year. This, combined with ongoing improvements to its recommendation systems, has resulted in a substantial 35% increase in time spent on Threads over the last six months. Ad supply is optimized and ramped up gradually across previously unmonetized surfaces including Threads, but the app will not be a major revenue driver in 2025.

Meta AI

During the quarter, Meta AI was released as a standalone app and the app was well received. Across its Family of Apps, Meta AI has garnered almost a billion monthly active users. Meta aims to position the app as the leading personal AI and focus on a few key areas including personalization, voice conversations, and entertainment.

Just like how the management developed its other apps, they want to build, scale, and focus on deep user engagement experience at least the next year before monetizing the app. CEO Mark Zuckerberg is open to the potentials of the app including exploring potential monetization through product recommendations, ads, and a premium tier for enhanced features or AI capabilities. User engagement with Meta AI was the highest in WhatsApp, followed by Facebook.

Reality Labs

Zuckerberg shared his unwavering view on AI glasses as the ideal form factor for AI and metaverse especially over the next five to 10 years. Powered by Meta AI, Ray-Ban Meta AI glasses are still navigating its pathway where smartphones are dominant. Their high usage, mirroring the accessibility of Quest 3S and the AI tools in Horizon, has led to a four-fold surge in monthly active users year-over-year. Its sales tripled in 2024. Meta will continue to partner with EssilorLuxottica to launch new products in 2025. Real-time translations for English, French, Italian, and Spanish on the glasses have been rolled out.

While incurring an operating loss, Zuckerberg will focus on efficiency and scaling its AI glasses at the right opportunity, aiming for significant adoption similar to successful consumer electronics products in their later generations. Over a billion people globally wear glasses today.

Key analyst questions

Meta sees significant long-term growth potential in digital advertising, driven by factors like increased online commerce, the demonstrated effectiveness of performance-based ads, and the potential for highly personalized advertising at scale.

CFO Susan Li added that the management does not focus on direct monetization of Llama. Instead, the core ads business benefits from Llama-enabled content and ranking improvements. Meta AI and AI devices will only be monetized in the long term. According to Zuckerberg, AI agents will be capable of handling a substantial portion of AI research and development by the end of 2026. Internally, AI agents are also being deployed to automate and accelerate recommendations improvements across Meta’s platforms.

Besides buying silicon from third parties, Meta will continue to design its own specialized silicon for specific tasks where standard chips do not perform optimally. Their in-house Meta Training and Inference Accelerator (MTIA) program initially targets core ranking and recommendations inference, with increased deployment planned for 2025 following initial adoption in 2024. MTIA will replace some older GPU-based servers to add capacity. By 2026, MTIA’s capabilities will expand to support core AI training and some generative AI applications. While partners like AWS and Azure help host Llama, Meta continues to fund its training infrastructure.

Li acknowledges that large advertiser spending cuts could decrease revenue and ad prices. However, the gap can be filled over time by their global, large, and well-diversified advertiser base. Their ad inventory’s flexibility across different industries also helps offset weakness in specific sectors despite noting reduced spending from some Asia-based advertisers in the U.S. These advertisers have redirected the spending to other markets. Meanwhile, some advertisers potentially spent more on advertising in Q1 ahead of events like the de minimis exception expiring in May.

The European Commission has ruled that Meta’s subscription model for users who want to avoid seeing ads is not compliant with the Digital Markets Act. Some potentially negative business impacts include a worse user experience for European users as well as less subscribers and lower advertising revenue from Europe in Q3 2025. Meta intends to appeal the European Commission’s decision while having to change its subscription model before or during the appeal process. European Union and Switzerland contributed to about 16% of Meta’s revenue in Q1 2025.

The fifth perspective

Meta’s AI-driven advancements are boosting productivity and demonstrating momentum across user engagement and advertising. These improvements, particularly in ad performance and measurement tools like Incremental Attribution, strategically position Meta’s ad platform for continued strength and relevance in a competitive market, reinforcing their commitment to delivering tangible business impact for advertisers and driving genuine growth. Overall, Meta believes its diversified advertising base and current healthy demand position them well to navigate various economic conditions.