Meta：Massive Capex? Hypergrowth Silences the Skeptics

Hello everyone. This is Dolphin Research.

$Meta Platforms(META.US) released its Q4 2025 results after hours on Jan 28 ET. On guidance, Meta did not dial back its investment budget, but the blowout revenue outlook warrants a sweetener for a stock that has been under a cloud all quarter.

Here are the takeaways:

1. A rare strong guide-up: For a top-scale ad platform to guide to roughly 30% growth (with ~4 pts of FX tailwind) is rare, shadowing all minor flaws. Advertising remains a gold mine, and AI is a share-gain weapon for cash-rich, data-heavy leaders.

2. Solid quarter: In Q4, fundamentals held up well. Revenue grew 24% YoY on a tough base (+23% on an FX-neutral basis), slightly ahead of consensus. Ads remain the pillar: ad impressions rose 18%, and price per ad increased 6%.

Reels and AI are the primary drivers. Short video naturally expands inventory but carries lower unit pricing, pulling down blended CPM growth.

With AI-driven content-recommendation upgrades, Reels, already immersive, broke out, lifting user stickiness and time spent, expanding ad supply and boosting conversion efficiency.

Beyond that, North America’s ad market was strong in Q4 (notably e-comm, travel, gaming). But with more macro uncertainty this year, advertisers are resetting expectations and shifting faster to performance ads given better ROI.

This benefits Meta’s performance-heavy online ad platform in the near term, but sustained uncertainty would still spill over. With expectations rising into the print (especially buy-side optimism in recent days), Q4 itself is not the focus.

3. A mild scare — spend appetite still strong: Management guides 2026 Opex at $162–169bn, up 37–44% YoY, above buy-side expectations of $150–160bn (slightly above BBG consensus). Absent the powerful topline outlook, the stock would likely have been punished.

At the same time, full-year Capex is guided to $115–135bn, up 59–87% YoY. This aligns with buy-side at $120–130bn, so not a positive surprise, but not a scare either.

Overall, management is still budgeting generously for investment. Whether spending gets reined later likely depends on revenue pressure, per Meta’s historical pattern.

With large-model gaps to close, AI spend will not be cut aggressively unless pressure becomes acute. Optimization room is more likely in legacy biz. units.

4. Profit pressure over the next two years: The production/investment mismatch has been visible since last quarter. Q4 total operating expenses rose 41%, accelerating from Q3 and further eroding profitability.

Q4 OP was $24.7bn with OPM down to 41%, compressing 7ppt YoY. Given this year’s Opex and Capex intensity, total revenue needs to grow 21%+ to deliver OP growth YoY.

5. Cash use and shareholder returns: Cash and short-term investments were $81.5bn at Q4-end, up $37bn QoQ, driven mainly by $30bn of new long-term debt issued in Q4. FCF was $14.1bn in the quarter, with $1.3bn in dividends.

But buybacks paused; even after a prolonged share pullback in Q4, management did not step in, likely due to tight liquidity amid heavy investment.

The once ‘hefty’ payout package has shrunk meaningfully, and dividends alone now offer limited support to the stock.

6. Key metrics at a glance

Dolphin Research View

The explosive growth outlook can temporarily offset criticism over unchecked near-term spend. Even so, investors must acknowledge profit pressure this year and next amid fearful sentiment.

Assuming 2026 Opex of $160bn and 2025 OP of $83.2bn, 2026 revenue needs to exceed $240bn, implying ~21% growth vs. this year, just to keep profits positive.

Q1 guidance is a strong shot in the arm, signaling more value yet to be realized at Meta, but full-year execution will be demanding.

It is not just about scale and base effects. Many ToC-native AI apps, led by OpenAI, must confront monetization, with advertising a front-row option. Meanwhile, TikTok, Meta’s long-time rival, is rearming for 2026.

These risks could be downplayed when sentiment is poor and valuation undemanding, but as the multiple rebounds, they deserve attention.

Conversely, at lower valuations, one could bet on a narrative turn for Meta — new models Avocado and Mango slated for Q1 (whether they are as ‘very good’ as the CTO suggested), Threads monetization progress, and any signals of Opex discipline ahead.

Given known profit headwinds, trading the narrative swings around sentiment and valuation may be the more comfortable approach this year. Otherwise, be prepared to stomach volatility and stay long-term.

At ~$1.8tn after hours, shares have rallied since last week’s CTO comment that the new models are ‘particularly good’ and the company announced near-term Threads monetization.

A ~$1.8tn mkt cap implies ~24x EV/NOPAT on 2026 consensus (at a 15% tax rate). That is below the 25x historical midpoint and well under most ‘Magnificent Seven’ peers.

Near term, there could be more upside on Threads monetization or further model news.

That said, given this year’s fundamentals, the after-hours price does not look like the most comfortable entry. Better to wait for dips. As profit pressure climbs, the stock may need to trade at some discount vs.

peers to preserve a margin of safety. When pressure potentially eases in 2H, a peer-multiple framework could make more sense.

Detailed Analysis

I. Guidance with the pedal down:

Q4 revenue was $59.9bn, accelerating to +24% YoY, or +23% FX-neutral, above sell-side and in line with buy-side. High growth is driven by user quality metrics, such as time spent and DAU stickiness, strengthened by Reels.

This keeps the 98% revenue-contribution ad engine compounding. VR launches (Quest 3S and the new-gen Ray-Ban AR smart glasses) helped, but AR is pricey and VR lacks content, so the contribution was limited.

Q1 revenue guide: Management guides 1Q26 revenue of $53.5–56.5bn, or +27–34% YoY, with a 4-pt FX tailwind. This is well above the $51.5bn sell-side consensus. Given management’s usual conservatism, 30%+ growth looks achievable.

By segment:

1. Ads: driven by Reels and AI

For ads, we break down the trends into volume and price to better parse macro and competition.

(1) Impressions

Q4 ad impressions growth accelerated to 18%. This came from a bigger user base, with DAP (DAU across Meta family apps) accelerating to +7% YoY, and from faster Reels monetization. Our estimate shows impressions per user rose ~10% YoY in Q3, a clear step-up.

Historically, when app mix is stable and pricing is rising (good macro, strong demand), Meta does not force higher fill to over-monetize and hurt UX. It usually lifts fill only when pricing is falling and there is revenue pressure.

Today is unusual: both total ads and ads per user are rising. Q4 also saw acceleration across regions, most notably in Asia. We think Reels time spent surged (Reels is about half of Instagram content time now), and short video naturally has higher ad fill, lifting the group average structurally.

As short-video ad penetration rises, blended ad pricing growth is dragged. Pricing also ties to macro and competition. For Q4, it is hard to isolate how much of the price deceleration, if any, came from those latter two factors.

Starting this week, Threads monetization begins, rolling ads to users globally. Advertisers can buy via the Advantage+ automated buying system, including Threads placements. Threads has 400mn+ MAUs, 140mn DAUs, and 35% stickiness, broadly in line with Meta’s social platforms.

2. VR: in contraction

Q4 Reality Labs revenue was $960mn, down 12% YoY. Last year’s Quest 3S launch and holiday season created a volume spike. When another spending surge sparked shareholder backlash, Reality Labs became the locus for group efficiency measures. Media has reported ~$3bn in 2026 savings. While a drop in the bucket versus losses, it signals organizational discipline.

II. Near-term profit pressure cannot be ignored

The investment/production mismatch has emerged since last quarter. Q4 total operating expenses rose 41%, accelerating from Q3 and further pressuring margins. Q4 OP was $24.7bn with OPM at 41%, down 7ppt YoY. With this year’s Opex/Capex intensity, revenue needs 21%+ growth to deliver OP growth.

Headcount was roughly flat QoQ in Q4, up by just 15 people. R&D and G&A remain elevated, unlike sales. The drivers are high-cost AI talent and legal-related costs including fines.

Specifically, R&D rose 41%, while G&A surged on legal, personnel, and fines. Despite the impressive revenue print, OP was $23.7bn, up only 4.9% YoY. By our estimates, 2026 margins could face another 5–6ppt headwind.

By segment OP, the loss source is clearer, and margin pressure will mainly sit in Family of Apps, namely ads plus other small revenue streams.

Q4 Capex was $22.1bn, up nearly $3bn QoQ. The 2026 Capex guide of $115–135bn is in line with expectations but remains massive. If revenue grows ~20%, a midpoint Capex of $125bn would be roughly half of revenue.