Meta3Q25 Quick Interpretation: At first glance, a company with a market value of $2 trillion having a quarterly profit of only $2.7 billion seems like a major flop! However, the net profit was mainly affected by a one-time provision of $15.9 billion due to the OBBB Act in the third quarter.
Excluding this factor, Meta's overall performance from revenue to expenditure is in a "high revenue, high expenditure" state. The 26% year-on-year revenue growth is quite impressive, but it did not exceed the current buy-side expectation range of approximately $51-52 billion. On the expenditure side, due to high increases in R&D and administrative expenses, the operating profit of $20.5 billion, with an 18% year-on-year growth, is not particularly outstanding compared to the revenue growth rate.
Of course, these are minor issues. The main concern is the upcoming guidance, which hits the market's "nightmare"—Opex & Capex. Whether for 2025 or 2026, both quantitative and qualitative aspects are generally being raised:
a. The 2025 Opex baseline is raised by $2 billion, reaching $116-118 billion. Based on the new midpoint estimate, the year-on-year growth in operating expenses for the fourth quarter will reach 37%.
b. In comparison, the 2025 fourth-quarter revenue guidance is $56-59 billion, with a year-on-year growth of only 16-22% (versus the buy-side expectation of approximately $58-60 billion). Clearly, fourth-quarter revenue growth is slowing. Based on this revenue and expenditure guidance, even if the highest revenue guidance of $59 billion is achieved, with the midpoint expenditure guidance, operating profit growth is likely to slow to around 10%+.
c. The 2025 Capex baseline is raised by $4 billion, with new guidance at $70-72 billion. Fourth-quarter capital expenditure will further increase to $20 billion from the third quarter's $19.4 billion.
d. The growth opportunities in 2026 are too tempting. Although specific data for 2026 capital expenditure has not been finalized, it is expected to "invest aggressively" through self-built and third-party co-built data centers, with the absolute value of capital expenditure "notably larger."
e. 2026 operating expenses: The growth rate in 2026 will be significantly higher than in 2025, mainly due to higher cloud expenses and amortization of infrastructure costs. This is actually because of the substantial recruitment of AI and technical talent in 2025, leading to a significant increase in employee expenses.
In this context, a market value of $1.89 trillion matching a full-year post-tax operating profit of less than $70 billion in 2025 results in a valuation of around 28X. When these numbers are put together, it becomes apparent: if revenue growth in 2026 cannot accelerate but investment increases, performance will clearly be in a mismatch period of input and output, causing EPS growth to slow to the low-teens or high single-digit growth range. Moreover, in 2026, due to increased capital and operating expenditures, the space for shareholder returns will be squeezed.
In this situation, if the valuation continues to hover in the 25-30X range, it is clearly inappropriate, and Meta is very likely to experience a valuation correction. $Meta Platforms(META.US)
