Table of Contents
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a. Key Points
- Margins were pressured by one-time expenses.
- AI continues to support strong healthy business trends.
- Daily active users returned to sequential growth.
- 28% revenue growth at massive scale.
b. Demand
- Beat revenue estimate by 0.8% & beat guidance by 2.2%. Foreign exchange boosted revenue growth by 1 point instead of 2 points of help assumed in Meta’s guidance from last quarter.
- Asia Pacific revenue missed estimates by 11%. U.S. + Canada (UCAN) revenue beat estimates by 4%. Europe missed by 3%. Rest of World beat by 4.4%.
- Family of Apps (FOA) revenue beat estimates by 0.9%; reality labs revenue met estimates.
- Y/Y growth slowed by 5 points compared to last quarter, but the Y/Y growth comp also got 6 points more difficult compared to last quarter, marking a modest acceleration on a two-year stacked basis.
- Family daily active people (DAP) met estimates. Good to see this resume sequential growth following the global war-related decline.
- Threads crossed 500 million monthly actives in less time than it took X or any other conversation app.
- Instagram crossed 2 billion daily active users.
- WhatsApp crossed 30 million messages per second for the first time ever during the World Cup final.
- Having built-in distribution to 3.6 billion people makes scaling distribution for everything else Meta does so much easier.
- 14% Y/Y ad impression growth missed 14.6% estimates.
- 12% Y/Y price per ad growth beat 11.7% estimates.
- WhatsApp paid messaging and subscriptions carried other business above $1B in quarterly revenue for the first time.
c. Profits & Margins
- Missed EBIT estimates by 12.5%. This includes $3.6B in total legal and severance fees (May layoffs). EBIT would have been 4% ahead of estimates excluding these one-off items.
- These costs led to 55% Y/Y operating expense growth. Excluding the two items, cost growth would have been about 41% Y/Y. 3rd-party AI token costs, AI talent and infrastructure depreciation were the other main sources of cost growth.
- Headcount fell by 3% Q/Q, which reflects part of its recent layoffs.
- EBIT rose 9% Y/Y ex-legal and severance charges.
- Missed $7.22 EPS estimate by $1.04. This was tied to the same costs as noted above.
- Beat -$1.2B FCF estimates by about $2B. This was likely cost recognition timing-related, although that wasn't mentioned on the call.
- CapEx rose by 83% Y/Y to $31.1B.
d. Balance Sheet
- $90B in cash & equivalents.
- $30B in investments.
- $83B in total debt.
- Diluted share count slightly fell Y/Y. Basic share count rose by 1% Y/Y.