Meta’s strong ad sales dampen tariff-induced fears

BENGALURU/SAN FRANCISCO/NEW YORK – Meta Platforms on April 30 rode strong advertising performance to beat analysts’ revenue estimates for the first quarter and match expectations for the next quarter, assuaging investor concerns over tariff-related economic growth fears.

The parent of Facebook and Instagram also increased planned capital expenditures in 2025 as it speeds up construction of data centres that can support artificial intelligence (AI), which it sees bolstering and transforming its business.

Meta shares were up 5 per cent in extended trading. The company boosted its 2025 capital expenditure plans to between US$64 billion (S$83.7 billion) and US$72 billion. Chief executive Mark Zuckerberg previously said it could spend as much as US$65 billion in 2025.

“The pace of progress across the industry and the opportunities ahead for us are staggering. I want to make sure that we’re working aggressively and efficiently, and I also want to make sure that we are building out the leading infrastructure and teams,” Mr Zuckerberg told investors on a call after publishing results.

Meta executives said most of the total capital expenditure is going towards supporting the core business, such as supplying the computing power for ads, rather than generative AI development.

But chief financial officer Susan Li said on the call that the increase to the forecast reflected a decision to more rapidly ready data centre capacity in support of AI efforts, as well as the potential for tariffs to increase hardware export costs.

The increased outlays could help soothe concerns that AI interest might be waning, especially after analysts in March flagged early signs of tech majors pulling back on new data centre commitments.

Meta reported revenue of US$42.3 billion for the first quarter, compared with analysts’ average estimate of US$41.4 billion, according to data compiled by LSEG. It reported profit of US$6.43 a share, beating estimates of US$5.28 a share.

Meta expects second-quarter revenue of between US$42.5 billion and US$45.5 billion, compared with an average estimate of US$44 billion.

Ms Li said the forecast reflected sales trends from April, but cautioned that the continued economic uncertainty made it especially difficult to predict future trajectory.

Mr Zuckerberg spoke at length about Meta’s AI bets being the reason the company is “well positioned to navigate the macroeconomic uncertainty”.

Nearly one billion people use Meta’s AI assistant on a monthly basis, he said. He added that the company would focus on increasing user engagement for the next year before turning to monetisation.

Meta is also using AI to improve ad targeting and recommendations to its social media users.

“If ad revenue continues to hold strong, then this increase in capital expenditures will be less of a bitter pill for investors to swallow,” said Ms Debra Aho Williamson, founder and chief analyst at Sonata Insights.

Shares of AI chipmakers rose after Meta and Microsoft reported financial results. Nvidia rose 2.7 per cent and Advanced Micro Devices rose 1.8 per cent.

Users up

Meta’s massive user base makes it a reliable go-to for advertisers at a time when US tariff-induced uncertainty has prompted companies to tighten marketing budgets and delay campaigns.

Family daily active people, a metric it uses to track unique users who open any one of its apps in a day, rose 6 per cent year over year to 3.43 billion.

Advertising accounts for the vast majority of Meta’s revenue. Some of the biggest US advertisers include Chinese e-commerce websites Temu and Shein, who are sharply cutting their US digital ad spending, industry data showed.

A day earlier, smaller rival Snap held back its second-quarter forecast and said that economic uncertainty and the administration’s ending of a duty-free import loophole were affecting its ad business, causing its shares to crater.

Ms Li said Meta had seen some decreased spending from Asia-based e-commerce exporters, likely for the same reason, but that trends in April had generally been healthy.

Meta’s proven advertising reliability means it stands to gain from economic instability, said Emarketer senior analyst Minda Smiley.

However, it “won’t be spared from a broader downturn if advertisers make substantial budget cuts and consumer spending falters”, she added.

Ms Li also noted a regulatory battle in Europe. There could be a significant impact on the European business as soon as the third quarter due to a European Union ruling that Meta breached the Digital Markets Act.

Ad revenue in the regions impacted accounted for 16 per cent of Meta’s 2024 revenue, she said.

Meta is also facing a high-stakes trial in Washington, in which the US Federal Trade Commission is seeking to unwind the company’s acquisitions of prized assets Instagram and WhatsApp. REUTERS