Meta's Q3 results

Like its other M-7 counterparts, Meta Platform too, delivered a great Q3-2025. However, the markets didn't like it for three reasons.

a) The GAAP EPS was down to just $1.05 because of a non-cash tax charge. That is not a real problem.

b) Guidance was light beating previous estimates by just 1%

c) Analysts have less faith in Meta's capex, simply because it isn't a cloud service provider that can recoup those investments selling AI services from its cloud operations. Instead all of its Capex shows up as embedded advertising growth, which in my opinion - it is doing, a 26% revenue growth for $200Bn company is incredible, how is that not from AI or better ad-targeting or content curation across its three massive properties, Facebook, Instagram and WhatsApp?

The headline read "Meta misses Q3 GAAP EPS by $5.66", however this included a one time non recurring income tax charge.

Meta (META): Q3 GAAP EPS of $1.05 V 6.71, expected - a miss of $5.66.

Adjusted EPS 7.25 beat by $ 0.54. The third quarter 2025 provision for income taxes included a one-time, non-cash income tax charge of $15.93Bn. Excluding this Meta's third quarter 2025:Diluted EPS  increased by $6.20 to $7.25,, handily beating the estimate of $6.71

Revenue of $51.24B (+26.2% Y/Y) beats by $1.83B. This is a $200Bn in revenue with about 47% of the world's population using one of its products, such growth is difficult if not impossible at this scale and size.

Third Quarter 2025 Operational and Other Financial Highlights

Family daily active people (DAP) – DAP 3.54Bn on average for September 2025,  up 8% Y/Y

ARPP increased from $12.29 to $14.46 Y/Y

Ad impressions – Ad impressions delivered Family of Apps increased by 14% Y/Y

Average price per ad – Average price per ad increased by 10% Y/Y.

Q4- 2025 total revenue to be in the range of $56-59Bn vs. $57.26Bn consensus - a small beat, perhaps causing consternation among analysts, especially when Meta is overspending on AI.

Capital expenditures - $19.37 billion - that certainly did not help the stock price.

"We had a strong quarter for our business and our community," said Mark Zuckerberg, Meta founder and CEO. "Meta Superintelligence Labs is off to a great start and we continue to lead the industry in AI glasses. If we deliver even a fraction of the opportunity ahead, then the next few years will be the most exciting period in our history."

Unfortunately the street didn't quite see it that way and the high capex spooked them. Meta plans to spend about $72Bn in 2025, as Bloomberg reported

The Meta CEO wasn’t concerned that the social media company may build more data centers and computing capacity than it needs to power its own AI systems. If Meta develops too much computing power, he said, the excess capacity could improve the core business. The company could also find a way to sell it, he said, the way rivals Microsoft Corp. and Alphabet Inc.’s Google already do.

Zuckerberg’s bigger point: “I think that it’s the right strategy to aggressively front-load building capacity.”

CFO Susan Li said Wednesday that Meta’s total expenses will “grow at a significantly faster percentage rate in 2026 than 2025.” She attributed the increasing costs to future infrastructure spending and the needs of Meta Superintelligence Labs.

Word on the Street, from a Seeking Alpha Summary,

Comments in bold, mine:

Oppenheimer downgraded Meta's investment rating to "perform" from "outperform" and removed its price target following Q3 results and said risk/reward is "properly reflected" after the stock's plunge. The research firm said the company's significant investment in its AI super intelligence unit, despite the unknown revenue opportunity, mirrors 2021/2022 Metaverse spending.

I don't believe the metaverse reference is warranted from Oppenheimer and Bernstein, there are genuine revenue improvements in its core business.

Bernstein praised Meta's revenue growth driven by AI execution but said it was reminded of the "Metaverse days" after the company warned of climbing investment levels. Ad impressions were the primary revenue growth driver in Q3, though pricing growth was also strong; paid messaging revenue growth remains strong but small, the research firm said. The rating was maintained at "buy," but the PT was cut by $30 to $870, a 15.7% upside. Citigroup maintained its rating at "buy" but lowered its price target to $850 (13.1% upside), from $915. The research firm now expects lower profitability for 2026 due to the company's aggressive spending and investments next year. They also acknowledged that the magnitude of investments is greater than what most expected.

Citigroup and other analysts on the street are right - with great power comes great responsibility, and they need to question whether Meta is spending sensibly.

Truist Securities said it remained constructive on Meta and believes the company continues to earn the right to invest as long as it delivers faster top-line growth and FCFs in the near term. They also noted that Q3 results reflected robust ad share gains fueled by AI improvements across ad recommendations, monetization, and user growth/engagement. The rating was unchanged at "buy," but the PT was lowered by $15 to $875, a 16.4% upside. Piper Sandler called the results "very impressive" and said the pressure on shares from the expense commentary for 2026 is a buying opportunity. The research firm projected flat operating income for next year and said FCF will likely be down. They remain bullish on ad model investments like GEM, Lattice, and Andromeda. The rating was maintained at "overweight," but PT was cut by $40 to $840, an 11.8% upside. Bank of America said they expect Meta's stock to be controversial given a limited EPS growth outlook and y/y FCF pressure in 2026. However, they see the company in a position of strength with its massive user network and the opportunity to integrate compelling AI products, including content creation tools, over the next two years. "We believe the bad news on expenses is now mostly in the stock, while product catalysts, including a new LLM and content creation tools, can drive upside engagement and revenue in 2026," the research firm said. The rating was maintained at "buy," but the PT was cut by $90 to $810, a 7.8% upside.

The stock is down to $650, today. I own shares, and I'm maintaining a Hold for now, and not planning to add any more. Its not that I fear Meta will generate enough revenue from the spending, I fear that the multiples will erode.