Meta Platforms Stock Dips: Time to Buy?
- - Meta Platforms Stock Dips: Time to Buy?
Daniel Sparks, The Motley FoolOctober 31, 2025 at 12:55 AM
0
Key Points -
Revenue growth accelerated in Q3 as ad prices and impressions increased at double-digit rates.
Losses from the company's Reality Labs division remained significant.
Management expects a huge jump in capital expenditures and expenses next year.
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Meta Platforms (NASDAQ:META) shares fell sharply after market close on Wednesday when the company reported third-quarter revenue and adjusted earnings per share that blew past consensus analyst forecasts for the two metrics. But apparently it wasn't enough for investors. What gives? Part of the reason for investor skittishness following the report is likely a combination of a non-cash, one-time tax charge and fourth-quarter revenue guidance that came in only slightly ahead of analysts' forecasts. Sound unfair? Well, a recent surge in the stock price means the bar was high going into the report.But the main issue is likely the social media company's massive spending forecasts for 2026 (more on this later).
Whatever the case, the overall results were strong, and management's guidance calls for more double-digit revenue growth in Q4. So, no matter what the reason was for the pullback, it may be a good time for investors to revisit the stock to see if this marks an opportunity to buy shares.
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Here's a look at some of the must-see takeaways from the quarter, as well as a look at the stock to see if it's a buy, hold, or sell.
The Meta Platforms name and logo on a smartphone screen.
Image source: Getty Images.
Impressive results, decent guidance
It would be difficult to critique Meta's third quarter. It was great on all fronts. Revenue for the period rose 26% year over year to about $51.2 billion, supported by strong increases in ad supply and pricing: ad impressions were up 14% and average price per ad increased 10%. Total daily active users across its platforms reached 3.54 billion up 8% year over year. Even if the company's one-time charge can be forgiven with a backdrop like that. Generally accepted accounting principles (GAAP) earnings were compressed by a non-cash U.S. tax item tied to the corporate minimum tax and a related valuation allowance, which lifted the quarter's reported effective tax rate to 87%. Showing how massive the non-cash tax charge was, earnings per share would have been $7.25 versus the reported $1.05 -- a gap that could explain part of why investors were spooked. However, there's upside to the implementation of the One Big Beautiful Bill as well."We expect a significant reduction in our U.S. federal cash tax payments for the remainder of 2025 and future years due to [its implementation]," management said in the company's third-quarter earnings release.
But what about that underwhelming guidance? Management projected fourth-quarter revenue between $56 billion and $59 billion; using last year's fourth-quarter revenue of $48.5 billion as a base, the midpoint implies about 19% growth, a significant step down from the 26% just posted. In addition, the midpoint of this range is only slightly ahead of what analysts were expecting. And given the stock's huge run-up over the last six months, investors may have wanted a figure that was significantly ahead of analysts' forecasts.
Also, an issue is the company's Reality Labs division, which is home to Meta's augmented reality headsets and glasses. The segment generated $470 million of revenue in the quarter and posted an eye-watering $4.4 billion operating loss. The division's losses continue to be a drag on consolidated margins even as the core advertising business expands. And management indicated that fourth-quarter Reality Labs revenue is likely to be lower year over year, reflecting product timing and retailer shipments that were recognized in the third quarter.
The biggest issue? Spending.
Then there's the company's big spending on AI (artificial intelligence) and infrastructure. They're already massive today, but they will be much bigger next year. Capital expenditures were $19.4 billion in the quarter, and the company said it expected total 2025 capital expenditures to total between $70 billion and $72 billion -- up from a previous forecast for $66 billion to $72 billion. Management also signaled that 2026 is likely to see a "notably larger" dollar increasein is capital expenditures as compute requirements expand.
Expenses, too, are expected to soar."We also anticipate total expenses will grow at a significantly faster percentage rate in 2026 than 2025," explained Meta's chief financial officer Susan Li said in the company's earnings release, "with growth driven primarily by infrastructure costs, including incremental cloud expenses and depreciation."
And with big capital expenditures next year, you can expect depreciation to keep snowballing. This could turn into a problem down the road if revenue growth slows in the years ahead. Of course, the goal of these capital expenditures is to support long-term growth and profitability. But we can't be sure the reward will be as lucrative as management hopes in the context of these massive costs.
A war chest of cash
Despite heavier investment, Meta produced $10.6 billion of free cash flow in the quarter and ended September with $44.45 billion in cash, cash equivalents, and marketable securities. This massive pile of cash allowed them to return some of it to shareholders, even as it invests aggressively in its future. The company repurchased $3.2 billion of stock and paid about $1.3 billion in dividends during the period.
Overall, the stock's pullback appears tied to optics and the expense trajectory more than demand. Revenue trends look solid, fueled by a high-performing advertising platform across its engaged user base. Additionally, guidance still points to high-teens growth off a tough compare.
Still, the company's massive spending is something worth keeping an eye on.
For investors considering buying the dip, it may make sense to exercise some patience. Shares are still up sharply from where they were just six months ago (even after the post-earnings stock price decline), giving the stock a price-to-earnings ratio in the mid-twenties -- a valuation that's not expensive but not a clear bargain either in light of the company's bit spending plans. With capital spending set to rise meaningfully again in 2026, depreciation is likely to climb rapidly, and this could weigh on earnings over the long haul.
Sure, it makes sense for the company to invest aggressively in its future. But it's hard to know what the return on this infrastructure spending will be.
I'd personally argue to stay on the sidelines for now.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
Source: “AOL Money”
