CMSI: Meta Platforms, Inc. Short-Term Profit Under Pressure, Maintains Overweight Rating

China Merchants Securities (HK) issued a report stating that Meta Platforms, Inc. (META.US) 's 2Q revenue rose 28% YoY to USD60.8 billion, about 1% above expectations and accelerating further from the 22% growth rate in 2025. GAAP operating profit fell 8% YoY to USD18.8 billion, while operating margin declined to 31%. Total expenses surged 55% YoY to USD42 billion. For 3Q guidance, the company expects mid-point revenue of USD62.5 billion, up 22% YoY. The mid-point of full-year total expense guidance was raised to USD167 billion, mainly reflecting litigation-related expenses recognized in 2Q. The company still expects 2026 GAAP operating profit to exceed that of 2025.

The report said Meta Platforms, Inc. (META.US) 's operating cash flow in 2Q increased 25% YoY to USD31.9 billion, but capital expenditure surged 88% YoY to USD31.1 billion, resulting in free cash flow dropping 91% YoY to USD784 million, compared with USD8.5 billion in 2Q last year. The company raised the lower end of its 2026 capital expenditure guidance from USD125 billion to USD130 billion, while maintaining the upper end at USD145 billion. Meta Platforms, Inc. (META.US) had already raised capital expenditure guidance by about 8% in its 1Q results and noted component inflation as one of the reasons. Mark Zuckerberg reiterated that Meta Platforms, Inc. (META.US) will continue to adopt a dual-track AI strategy combining open and closed models, and maintain long-term control and performance advantages through a full-stack deployment covering data centers, chips and software, implying continued investment in AI talent and hardware.

China Merchants Securities (HK) maintained its Overweight rating on Meta Platforms, Inc. (META.US) with a TP of USD870. Meta Platforms, Inc. (META.US) 's solid advertising business and massive user base provide funding, data and distribution advantages for AI-driven advertising efficiency improvement and monetization of diversified businesses. Although heavy short-term investment pressures free cash flow and profit margin, the company is still expected to improve monetization efficiency of its core advertising business and unlock new revenue streams over the medium to long term. (ha/u)(Real-time Streaming US Stocks Quote; Except All OTC quotes are at least 15 minutes delayed.)