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US earnings season
Meta Q2 2025 earnings preview: AI bets meet reality check
Meta reports Q2 earnings July 31 as Wall Street questions if AI investments and Reality Labs' $4B quarterly burn can sustain 40% margins at current valuation.
Earnings expectations and recent performance
Meta is scheduled to announce its second quarter (Q2) 2025 earnings after the market closes on Thursday, 31 July at 6.05am (AEST).
For Q2, consensus estimates project revenue of $44.55 billion (+14% year-on-year) and earnings per share (EPS) of $5.84. However, with four straight beats averaging 18.5%, including a 23% surprise last quarter, even a 10% beat might not move the stock.
The real story: Can Meta maintain 40%+ margins while burning $70 billion on artificial intelligence (AI) infrastructure and $16 billion annually on Reality Labs?
Business segments face mixed prospects amid heavy investment
Meta's $180+ billion ad business remains the cash machine funding everything else.
- Digital advertising continues as the profit engine
With AI-powered ad tools showing promise through 30% adoption driving a 5% boost in Reels conversions, revenue per user hit $49.63 (+11.28% year-on-year), proving Meta can still squeeze more from its user base. However, concerns persist as ad load approaches limits across Instagram and Facebook. Average revenue per user (ARPU) growth increasingly relies on pricing power rather than volume, while Asia-Pacific disappointed in Q1 ($8.22 billion versus $8.42 billion expected) as Chinese exporters pulled back amid tariff fears.
- AI strategy
Meta's AI strategy faces expensive reality as the company defies Silicon Valley orthodoxy. While competitors guard their models, Meta gives away Llama for free, betting on ecosystem dominance. The $60-70 billion 2025 capital expenditure (CapEx) plan shows serious commitment, with revenue per customer already jumping to $49.63 (+11.28% year-on-year), proving AI can enhance monetisation.
- Reality Labs
Reality Labs continues burning cash with no end in sight, consuming $4 billion quarterly with no profitability visible. Critics see Mark Zuckerberg's expensive hobby, but context matters. With $96 billion in operating cash flow, Meta can afford big bets. The metaverse vision has evolved beyond virtual reality (VR) headsets to owning the next computing platform, augmented reality (AR) glasses, neural interfaces, or something unimaginable.
WhatsApp represents significant untapped potential after 11 years and $19 billion in investment. Meta is finally monetising WhatsApp, and the opportunity is staggering. Currently generating just $1-2 billion annually from three billion users, Wolfe Research projects a $30-40 billion revenue opportunity from business messaging alone.
Five key factors for 31 July
Beyond headline numbers, five factors will determine Meta's post-earnings trajectory:
- AI return on investment (ROI) metrics: concrete examples beyond 'engagement is up'
- Q3 guidance tone: expected decline needs context
- Reality Labs discipline: signs of cost control or strategic focus
- Geographic mix: Asia-Pacific recovery after Q1 disappointment
- WhatsApp monetisation timeline: clear revenue targets and implementation
Wall Street sentiment reaches extreme levels
Wall Street loves Meta, perhaps too much. The numbers show consensus optimism meeting valuation reality. According to current data, 63 of 71 analysts say 'Buy' or 'Strong buy', with just one lonely sell rating. Such unanimity sometimes precedes disappointment.
Meta buy/sell indicators
Meta scores a perfect TipRanks Smart Score of '10 Outperform' - the highest possible rating across all metrics (as of 21 July 2025).
The concern: average price target of $732.63 implies just 2% upside. When everyone's bullish and there's no room to run, perfection becomes the minimum acceptable outcome.
TipRanks Smart Score
Valuation comparison with tech peers
Meta's premium valuation becomes clearer when compared to peers. Among tech giants, the company offers a compelling balance of growth and value.
The takeaway: Meta offers a lower price-to-earnings (P/E) ratio than Microsoft, Amazon, and Netflix, with stronger EPS growth than Apple and Alphabet. Its return on equity (ROE) is among the highest, and debt levels remain low, making it one of the most financially efficient names in the group.
Key peer comparison (as of 21 July 2025)
Meta technical analysis
Key levels to watch:
- Resistance: $720-725 (channel re-entry), $745-750 (previous highs)
- Support: $700 (broken channel), $680 (next major), $650 (critical support)
The channel breakdown changes the technical picture. Meta needs to reclaim $720+ to negate the bearish signal and re-enter the ascending channel. A strong earnings beat could spark this recovery towards $750. However, disappointment would likely accelerate the breakdown with local support at $680.
Volume remains light during this breakdown, suggesting either a false break or market waiting for earnings confirmation. Relative strength index (RSI) stays neutral, providing room for a sharp move in either direction.
Meta daily chart
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