Key Takeaways:
- META shares fell 9.7% year to date to $595, trading at 18x forward earnings.
- Q1 revenue rose 33% to $56.3B, with ad impressions up 19% and pricing up 12%.
- Meta raised 2026 CapEx guidance to $125B-$145B, fueling margin concerns.
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Meta slides 10% in 2026 ahead of Q2 earnings on July 29
Meta Platforms reports Q2 earnings on July 29 with its stock down 9.7% year to date, testing whether 18x forward earnings offers value.
"Meta retains the flexibility to bring it online more slowly or reduce our spending in future years if returns lag," CFO Susan Li said, referring to the company's AI infrastructure buildout.
Q1 revenue reached $56.31 billion, up 33% from a year earlier, beating consensus by $3.6 billion. Ad impressions rose 19% while average price per ad climbed 12%. Operating margin stood at 41.44%, with gross margin at 82%. The company generated $32.23 billion in operating cash flow during the quarter.
The Q2 report will test whether Meta's AI investments are translating into ad revenue growth without eroding margins. The company raised its 2026 capital expenditure forecast to as much as $145 billion, up from a prior $135 billion ceiling, sparking questions about the return on AI spending. Meta holds $81.2 billion in cash and securities, giving it a cushion against the elevated spending.
Wall Street remains bullish. Analysts assign 57 buy ratings, 6 holds and zero sells, with a consensus price target of $826.01, implying 38.8% upside from Friday's close of $595.19. Meta has beaten EPS estimates for six consecutive quarters, and prediction markets assign an 87.1% probability of another beat.
The advertising business remains the primary growth engine. Meta's Family of Apps generated $55 billion in ad revenue in Q1, benefiting from record video consumption on Instagram and Facebook. Time spent on Reels increased 10% in Q1, while Facebook's global video watch time rose more than 8%.
By comparison, Alphabet trades at 25x forward earnings with 24% revenue growth in its most recent quarter, making Meta cheaper on both a valuation and growth basis. Meta's full-year 2025 free cash flow of $43.59 billion funded $26.25 billion in buybacks alongside a $0.53 quarterly dividend.
A Q2 beat could reverse Meta's year-to-date decline and validate the AI spending thesis. Investors will watch the July 29 earnings call for updated segment margins and any revision to the 2026 CapEx range.
This article is for informational purposes only and does not constitute investment advice.
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