Q2 Fiscal 2025 Financial Highlights (Ended June 30, 2025):

• Revenue: A robust $47.52 billion, representing an impressive 22% increase year-over-year. This comfortably beat analysts' consensus forecasts of approximately $44.7-$44.8 billion.

• Adjusted Earnings Per Share (EPS): Soared to $7.14, a substantial 38% increase year-over-year, and well ahead of the expected $5.85-$5.89 range.

• Operating Margin: Significantly improved to 43%, up from 38% in the same quarter last year, reflecting strong operational leverage and the efficiency gains from AI.

• Net Income: $18.33 billion, up 36% from the prior year.

• Daily Active People (DAP): Continued to grow, reaching 3.48 billion across the Family of Apps (Facebook, Instagram, WhatsApp, Threads) on average for June 2025, a healthy 6% increase year-over-year.

Diving Deeper: Business Drivers & Strategic Commentary

This was a standout quarter for Meta, with strong performance driven primarily by advancements in its advertising systems, heavily influenced by AI. The key takeaway is that Meta's core business is thriving, providing ample fuel for its ambitious long-term bets.

• Advertising Engine Accelerates with AI: The core advertising business remains the powerhouse, with revenue contributing $46.56 billion. This strong performance was a direct result of an 11% year-over-year rise in ad impressions across Meta's Family of Apps and a 9% increase in the average price per ad. CEO Mark Zuckerberg explicitly credited Meta's AI technology for unlocking greater efficiency and effectiveness within their ad system. This includes the expansion of new AI-powered recommendation models and the increased use of generative AI creative tools, which are proving particularly valuable for smaller advertisers. The strong ad results indicate AI is not just a future vision but a current revenue driver.

• Aggressive Investment in AI and Superintelligence: Meta is clearly "all in" on AI. Capital expenditures for Q2 2025 more than doubled year-over-year to $17.01 billion. The company raised and narrowed its full-year 2025 CapEx outlook to a range of $66 billion to $72 billion (from the prior $64-72 billion), and crucially, anticipated another year of similarly significant capital expenditures dollar growth in 2026. This massive spending is aimed at building out "superintelligence" and robust AI computing capacity, signaling Meta's determination to be a leader in the next era of AI. Zuckerberg highlighted the progress towards LAMA 4.1 and 4.2 models and the development of "Prometheus" and "Hyperion" clusters, aiming for gigawatt-plus scale.

• Reality Labs: The Reality Labs division, Meta's long-term bet on the metaverse, reported an operating loss of approximately $4.53 billion for the quarter, slightly better than analyst expectations but still a significant draw on capital. Revenue for Reality Labs came in at $370 million. While this segment continues to be a drain on profitability, it's consistently framed as a long-term strategic investment. An encouraging highlight, however, was the tripling of sales for Ray-Ban Meta smart glasses year-over-year in the first half of 2025, suggesting incremental progress in practical AI-enhanced devices.

• Optimistic Q3 Guidance: Meta's guidance for Q3 2025 revenue of $47.5 billion to $50.5 billion surpassed analyst estimates, reinforcing management's confidence in sustained momentum and effective monetization of AI-driven improvements.

Market Reaction & Our View:

Following the blowout earnings beat and robust guidance, Meta's shares surged significantly in after-hours trading yesterday, climbing roughly 10% and reaching new highs around $780. This strong market reaction clearly signals investor confidence in Meta's ability to drive growth from its core business while strategically investing in a leadership position in AI.

This quarter reinforces our view that Meta is a dynamic and evolving company. The substantial investments in AI are not just speculative; they are already yielding tangible benefits in the efficiency and effectiveness of their core advertising platform, driving impression growth and pricing power. While the Reality Labs losses remain a point of monitoring, the strength of the Family of Apps allows Meta the financial flexibility to pursue these ambitious long-term projects. We continue to see Meta as a compelling long-term holding, leveraging its massive user base and technological prowess to capitalize on the evolving AI landscape.