Key takeaways from Meta’s Q3 earnings, amid flat stock reaction

Meta Platforms stock (NASDAQ:META) logged a measured decline of 1-plus percent in early postmarket action after its Q3 earnings report, as a beat on top and bottom lines was tempered by the ongoing realization that heavy technology spending would continue to pressure profits.

Revenues of $40.59B marked 19% year-over-year growth and came in slightly higher than consensus for $40.31B, while diluted earnings per share jumped nearly 37% to $6.03, vs. an expected $5.29.

“We had a good quarter driven by AI progress across our apps and business,” said CEO Mark Zuckerberg in initial reaction to the report. “We also have strong momentum with Meta AI, Llama adoption, and AI-powered glasses.”

Operating metrics

Daily active people in Meta’s “family of apps” grew 5% on average to 3.29B per day, better than consensus compiled by Bloomberg for 3.25B.

Meanwhile, ad impressions lagged forecasts (+7% vs. an expected +11.5%, according to Bloomberg) while average price per ad rising 11% outpaced expectations for +6.8%.

More details on AI success will have to come from Zuckerberg on the conference call; at the time of the earnings release, the company simply noted that revenue in its Reality Labs unit rose to $270M from a year-ago $210M, still a fraction of total revenue of 40.6B (of which ad revenues made up $39.9B, up from a year-ago $33.6B).

Margins gain again

Meanwhile, even as revenue rose 19%, overall costs and expenses increased just 14% (to $23.24B).

That led to operating income that rose 26% to $17.35B, and an operating margin that ticked up to 43% from a year-ago 40%.

Capex in a heavy investment era

In the midst of an expensive, multi-quarter push into investments in AI and virtual/mixed reality, capital expenditures have become a key investor focus each quarter — and despite some hope that the company would shine a brighter light on 2025, Meta stuck to the basics: “We continue to expect significant capital expenditures growth in 2025.”

“Given this, along with the back-end weighted nature of our 2024 capital expenditures, we expect a significant acceleration in infrastructure expense growth next year as we recognize higher growth in depreciation and operating expenses of our expanded infrastructure fleet,” Meta added.

Capex this year is coming in pretty much as the Street expected, though a little higher than company guidance: “We anticipate our full-year 2024 capital expenditures will be in the range of $38-40 billion, updated from our prior range of $37-40 billion.”

Analysts react

“META stock appears to be facing some pressure due to the more modest beats to consensus,” said Julian Lin, Investing Group leader for Best Of Breed Growth Stocks. “Growth is expected to decelerate moving forward, largely due to lapping tougher comparables. Looking longer term, I expect Wall Street to look past quarter-to-quarter noise and focus more on the increasingly high-quality set of businesses here, which continue to generate incredible profit margins even after accounting for hefty Reality Labs losses.”

“Here we have a $150B revenue business growing that revenue line at 23% on a [trailing 12-months] basis, which is remarkable in and of itself,” said Alex King of Cestrian Capital Research, Investing Group leader for Growth Investor Pro.

“Unlevered pretax free cash flow margins rose to 40% — that’s after the huge capex bill -– and the balance sheet remains a fortress with $42B of net cash even after all the buybacks,” King said. “We believe the company will continue to improve its positioning and that the fundamentals will remain strong. Zuckerberg 2.0 is on fire, in a good way. We rate the stock at Hold, with a price target of $676/share.”

The company’s Q3 earnings call is set for 5 p.m. ET.