Meta's latest earnings report shows that while its advertising business continues to grow, significant investments in AI infrastructure have driven up spending. Although revenue exceeded market expectations, profits, guidance, and cash flow were under pressure, causing the stock price to fall after the earnings release.
Revenue exceeded expectations, but profits and guidance were weak.
Meta reported second-quarter revenue of $60.8 billion, exceeding market expectations of $60.17 billion. However, earnings per share were $6.18, below the $7.22 expected by analysts in an LSEG survey.
The company provided revenue guidance of $61 billion to $64 billion for this quarter, with a midpoint of approximately $62.5 billion, lower than Wall Street's previous estimate of $63.15 billion. Daily active users were 3.6 billion, also slightly lower than the market's estimate of 3.61 billion.
Net profit fell to $15.85 billion from $18.34 billion in the same period last year. As a result, Meta's stock price fell as much as 7.45% in after-hours trading.
AI data center investments drive up capital expenditures
From an operational perspective, Meta's cash-generating ability has not deteriorated significantly. Operating cash flow in the second quarter was $31.9 billion, roughly the same as the $32.2 billion in the first quarter.
The real drag on cash flow was capital expenditure. The company's capital expenditure reached $31.1 billion in the quarter, an increase of more than 50% from the previous quarter. After massively building AI data centers, Meta's free cash flow for the quarter was only $784 million.
This figure is significantly lower than the $8.55 billion in the same period last year, and also lower than the $12.4 billion in the first quarter of this year. The company also adjusted its full-year capital expenditure forecast to $130 billion to $145 billion, raising the lower limit by $5 billion again, indicating that investment in AI will continue.
Advertising revenue continues to grow, and cash reserves provide a buffer.
Despite rapidly rising spending, Meta's advertising business continued to grow. Ad impressions increased by 14% year-over-year in the second quarter, while the average ad price rose by 12%. However, revenue growth slowed to 28% in the second quarter, from 33% in the first quarter.
As of the end of the quarter, Meta held $90.3 billion in cash and marketable securities, maintaining ample cash reserves. The report noted that after the stock price decline, Meta's price-to-earnings ratio was approximately 20, lower than the S&P 500's approximately 28.
Several projects are still underway.
Meta's massive investments continue. The report mentions that the company is working with BlackRock on a $14 billion data center project in El Paso, Texas; the Hyperion project in Louisiana involves an investment of over $50 billion; and there is also a construction plan of approximately $9 billion in Alberta, Canada.
This means that the market will continue to focus on two key indicators: whether advertising revenue can continue to support growth, and how long the high-intensity investment in AI will put pressure on free cash flow.
